The Chinese Are In Love With Bitcoin And It's Driving The Digital Currency's Prices Into The Stratosphere

That now seems like a distant memory.

Since reaching a low of $109 on the Mt. Gox exchange the day of Silk Road incident Oct. 2, prices have climbed nearly $100, reaching as much as $233. Prices haven't fallen below $200 since Sunday.

The reason is simple: China.

Even before the Silk Road crackdown, Chinese had been nudging the market up.

In September, in a story headlined "Bitcoin Mania Grips China," BloombergBusinesseweek's Lulu Yilun Chen reported on the surging investment in Chinese-based Bitcoin exchanges and "miners," or firms that set up computers with the processing power to unlock new packets of currency.

"In China, the stock market, property, and bond market are all not so good, so people get really excited when they hear of a new investment that generates high returns," Peter Pak, head of trading at BOCI Securities in Hong Kong, told Chen.

Then in mid-October, Baidu, China's version of Google, announced it would start accepting the digital currency for some of its services.

In an email, Zach Harvey, founder of Bitcoin ATM developer Lamassu, says the move gave the digital currency a "huge boost," both in terms of legitimacy and in value - since confirmation of the announcement began filtering out around Oct. 16, prices have climbed $40.

China now ranks second behind the U.S. for number of Bitcoins created weekly.

In her story, Chen reported that, relatively speaking, the number of Chinese Bitcoin users has been too small to draw the attention of the Party to the currency.

But Harvey noted that "small" in China could mean big for the rest of the world:

"[Given] the sheer size of the Chinese population...a small percentage could get excited about Bitcoin, and the could really drive up the general popularity of Bitcoin."

On Oct. 20, Bitcoin Magazine's Vitalik Buterin wrote that, with some caveats, "the Bitcoin markets are dominated by the Chinese."

"Although it might be hard to believe, the Chinese Bitcoin exchanges are in fact responsible for much more trade volume than those in Europe and the United States.

"BTCChina, the most prominent Chinese Bitcoin exchange, currently shows roughly the same volume as MtGox and BitStamp, and there are plenty of other exchanges that have not received as much public attention outside of China, but whose volumes add up to even more than BTCChina altogether.

Buterin noted that there are signs some of that volume revolves around speculation.

Even so, Chen reported Chinese regulators have so far ignored the Bitcoin market.

But even if they were to take notice, Harvey argued they may let it continue largely unfettered.

"It seems the Chinese government actually likes the idea that the US federal government seems to be concerned about Bitcoin, so they're not being as harsh regarding regulatory requirements."

Prices reached highs of $213 on Mt. Gox Tuesday.