UPDATED on 6th January at 10:45 GMT.
The price of bitcoin exceeded $1,000 on the CoinDesk Bitcoin Price Index at around 08:20 GMT today.
The price of bitcoin has, once again, reached $1,000 on popular bitcoin exchange Mt. Gox.
A few weeks later, the price started to tumble after China’s central bank imposed restrictions on the involvement of the country’s banks and third-party payment processors in bitcoin.
On 5th December, the central bank said Chinese financial institutions were no longer permitted to work with bitcoin exchanges or other bitcoin companies. That same day, the price fell from $1,135 to a low of $870, according to the CoinDesk Bitcoin Price Index, which averages prices across Mt. Gox and other leading bitcoin exchanges.
Two days later, the price fell to a low of around $558. Over the following week, the value fluctuated relatively mildly before the People’s Bank of China took further action.
Payment processor ban
It was on 16th December CoinDesk broke the news that the central bank had met with representatives from the nation’s largest third-party payment processors and informed them they were no longer permitted to work with bitcoin companies.
The authorities made it clear they were not taking action to prevent individuals from owning, buying and selling bitcoin, but by restricting the involvement of banks and payment processors, they made bitcoin trading rather difficult.
As soon as the regulatory news broke, panic selling began and the price of bitcoin plummeted again, with many digital currency naysayers predicting the end was nigh.
On 18th December, the price dipped to around $422, but there have been no dramatic crashes since then. In fact, the general trend has been upwards, with the price on the CoinDesk BPI at the time of writing being $927 (it has not yet crossed the $1,000 mark today on the BPI).
Garrick Hileman, economic historian at the London School of Economics, commented: “Bitcoin’s price continues to show remarkable resilience in the face of regulatory restrictions and criticism from some of the world’s most influential economists.”
Aside from price resilience, bitcoin’s general popularity in China doesn’t seem to have abated either, with massive Chinese web portal Sina.com.cn recently adding bitcoin market information pages to its site.
Despite repeated statements from the People’s Bank of China appearing to prevent widespread bitcoin use, it also appears trading remains active at China’s busiest bitcoin exchanges. After BTC China scaled back its banking relationships in December, Huobi took the number one spot by managing over half of all Chinese bitcoin transactions. Some exchanges have found ways to continue accepting bank deposits, and there is speculation Huobi’s CEO is channeling funds into the exchange through a personal bank account.
Exact information on the absolute latest bitcoin news in China and exchange trading volumes, however, can be difficult to verify quickly.
What’s driving the price of late?
The recent upward price momentum may be driven by a number of positive announcements, particularly news that online retailer Overstock, which has yearly revenue of over $1 billion, will begin accepting bitcoins for transactions this year. Social gaming company Zynga also announced this weekend that it has begun accepting bitcoin payments for many of its popular games such as FarmVille 2 and CityVille.
Hileman believes that online merchants such as these will help introduce bitcoin to a more mainstream audience in 2014:
“For most people, bitcoin is still something they have only heard about. Over the next year more and more people will have the opportunity to use bitcoin in daily transactions.”
Another factor that may have driven the price of late has been all the attention bitcoin is receiving in the econoblogosphere from Nobel Prize winner and New York Times columnist Paul Krugman, UC Berkeley Professor Brad DeLong, and Tyler Cowen of the Marginal Revolution blog, among others.
While much of this commentary has been critical, it illustrates bitcoin’s broadening importance and legitimacy, and generated additional publicity for the upstart alternative currency, not to mention stirring those within the bitcoin community such as Coinbase’s Fred Ehrsam and programmer Oleg Andreev to publish their own rebuttals.
The price may also be responding to a general ‘bitcoin bullishness’ in the new year. According to a recent CoinDesk poll, over 56% of respondents expect the bitcoin price to reach $10,000 sometime in 2014. So while $1,000 seems pretty high at the moment, this could soon be overshadowed.