The international business newspaper The Financial Times linked the growth of digital currency to the activities of Sergey Mavrodi – the founder of the social financial network called MMM. However, there is another possible reason for that. Experts believe that the massive capital outflows from China due to country’s poor financial situation led to the rise in bitcoin price.
Is MMM behind the bitcoin value increase?
It was reported that Sergey Mavrodi invited new members of pyramid scheme to purchase bitcoins. Whereas the majority of shareholders were Chinese citizens. In order to join MMM potential members bought bitcoins and sent them to other participants of the network as a «mutual aid». Bitcoin recipients were obligated to return 30% and pay out bonuses for sending bitcoins and posting information on social network websites.
«Today, on 31st of October, I received 20% benefits and bonuses, in a total $7.75. I am absolutely convinced of MMM’s greatness and the honesty of all participants», said the member of MMM pyramid Wen Qiang. The Financial Times noted that the Chinese MMM scheme exists for just a year now, but attracted more attention as the value of bitcoin rose.
CNBC previously announced that bitcoin price soared over 70% in one month. Increase of investments and extensive coverage of the bitcoin subject in the mass media were mentioned among the reasons for the cryptocurrency’s rapid growth.
What does China’s current economic situation mean for bitcoin price?
Reports focusing on Chinese economic problems appear in media quite frequently. People tend to withdraw money at the earliest opportunity.
It is rather difficult for an ordinary Chinese investor to approach the underground banks or people for helping them draw money out of the country.
In most cases money are transferred overseas using digital currency (bitcoin).
«Following the last devaluation of the yuan some Chinese traders were considering an option of turning to other more profitable assets due to speculators», said the head of International OKCoin Jack C. Liu in an interview with Bitcoin Magazine.
As a result, the price of bitcoin has doubled since mid-July 2015 when Chinese stock market intensively liquidated positions and later experienced frenetic activity after the currency devaluation in August 2015.
Bitcoin is untraceable, consequently, the authorities are not capable of catching those responsible for moving money out of the country.
The system works as follows:
Chinese investor who does not want to lose savings put into real estate, stock market or bank deposits, brings his funds to the underground money exchange.
The clandestine exchange provides investor with an anonymous bitcoin wallet. IP address – the only feature linking bitcoin to its owner – can be hidden using the VPN or TOR.
Investor can convert bitcoins into dollars at any of global cryptocurrency exchanges maintaining his anonymity.
Withdrawal of dollars from bitcoin wallet outside China seems to be the only tricky thing. It requires a foreign bank account. Chinese authorities cannot intervene in this process.
The underground exchanges also offer more traditional methods of moving money overseas using various means to obtain foreign currency.
All in all, they need foreign currency to purchase bitcoins and share it with their Chinese customers. That is why there has been a dramatic digital currency price increase recently.
The underground money exchanges usually purchase bitcoins directly from bitcoin miners who work in China and need to pay for utilities in CNY.
The anonymous transactions attract more and more investors. Over the past year, China’s biggest exchange BTC China has traded 31 million bitcoins. At the current price it is worth $15 billion. During the same period, for instance, trading volume on the largest exchange for US dollars BitStamp has not exceed $1.4 billion.
BTC China announced on 4th November that from now on it accepts direct deposits from Chinese citizens that can be further exchanged for bitcoins.
According to reports as of November 4, digital currency experienced rise of about 20% reaching $487.
Taking into account the situation in Cyprus in 2013 one can determine how high bitcoin price may rise. Sovereign debt crisis on the small Mediterranean island resulted in the deposit freeze. During that period Russian oligarchs used bitcoins for withdrawing their funds.
In 2013 bitcoin soared from $13 to $121 after the crisis and before the speculative mania caused its price increase to $1,127. In case of Cyprus, the question was about deposits worth billions of dollars, however, to China – it is trillions.
Can the $5 billion pool of bitcoins resist? The answer is – yes. It just depends on the price.