China & The Code: Keys To Bitcoin Hitting A 2-Year High

The price of the Bitcoin hit its highest level in more than two years on Monday, surpassing the $700 mark. The two main drivers behind such a spike (also up 27 percent in the past month) were the introduction of a new rule in the cryptocurrency's code, which could result in tighter supply, and a high demand in China.

To make a complex story short, here's how Bitcoin works: in order for transactions to go through, people use their computers to solve very elaborate math problems, getting a certain amount of Bitcoins for every problem solved. This process is called mining, and it’s the only way in which Bitcoins are created and distributed. The interesting part here is that, unlike most other monetary systems, the Bitcoin system has a finite supply. Only 21 million coins will be released over time, so the monetary base is predictable.

"The block halving will dramatically decrease the bitcoin being added as we approach 75 percent of all bitcoin issued. People understand that in this world of ever expanding assets and printing of money, we have something that's fixed and limited in issuance. It gives a decent alternative for people who want to hold assets that can have sustained purchasing power,” Bobby Lee, chief executive of Chinese Bitcoin exchange BTCC told CNBC.

As time went by, the reward for solving the aforementioned math puzzles became smaller. Next month, a new reduction is expected, and this is already driving the value of the crypto currency up. Experts are expecting the reward to be cut in half in early July. So, going forward, each problem solved will award 12.5 Bitcoins, in lieu of 25, like they have since 2012.

Bitcoin’s valuation is also being helped by “very high trading volumes" in China, Lee added.