The price of bitcoin surged nearly 20% during the week ending 3rd June, rising to its highest point in 20 months. But what was the cause of the increase?

Mainstream media sources

have largely attributed this sharp increase to demand from the Chinese market, prompted by yuan devaluation. But not everyone agreed with this explanation, as some market experts asserted that the rally was tied to other developments both within and outside of the digital currency ecosystem.

Xu Qing, a spokesperson for Huobi, painted a different picture. Though Xu represents one of the largest bitcoin exchanges by volume, accounting for 41.91% of this week’s trades, he saw the movement as part of a broader series of stresses on the Chinese financial markets.

Xu told CoinDesk:

Still, other market observers were quick to stress that this was the predominant factor.

Arthur Hayes, co-founder and CEO of BitMEX, voiced support for the idea that concerns about yuan devaluation helped drive bitcoin prices higher, as panicking Chinese market participants bought into bitcoin to avoid losses.

"The fears of a sharp yuan devaluation are rising. It was set off by the People's Bank of China weakening the yuan to the lowest levels since March 2011," Hayes told CoinDesk.

However, the developments in the Chinese markets seem to have once again opened a continued subject of debate in the bitcoin trading community, the perception that Asia-based exchanges are using unfair or illegal tactics to drive market activity.

Petar Zivkovski, director of operations at bitcoin trading platform Whaleclub, told CoinDesk that in his view, this correlation with the yuan is being used to sell headlines, and that it may not paint a portrait of what is happening on the ground.

"The theory that the Chinese are buying bitcoin due to yuan devaluation is a nice story to tell, but is in our view incomplete,” he told CoinDesk, adding:

Zivkovski said that he believes the bigger story is not negativity to the yuan, but rather improved market sentiment toward bitcoin. Data provided by Whaleclub suggests 94% of volume – as measured by position size – was long.

In other words, Zivkovski said that members of the largest trading community in bitcoin are increasingly optimistic bitcoin’s price will rise. Adding evidence to this claim is that the digital currency’s price broke through the psychologically important $500 level on 29th May, reaching its highest since August 2014.

These gains took place as Whaleclub data suggested long-short ratios surged to record levels of 15:1, which indicates market sentiment is bullish.

Still, there were other theories, including one that finds traders once again looking analytically at the relationship between bitcoin and ether, an alternative digital currency that has fast gained favor with traders due to the strength of its technology.

Joe Lee, founder of derivatives trading platform Magnr, for example, said that he doesn’t believe China is more active in the bitcoin markets, and that "interest in ether" caused most of bitcoin’s weekly price increase.

Lee emphasized the relationship developing between the two assets, stating that "bitcoin is now seen as a safe hedge and cash out mechanism for Ethereum investors." He also described bitcoin as "the main on-ramp to owning Ethereum and the most liquid trading pair into the new currency."

Daniel Masters, chief investment officer at Global Advisors Bitcoin Investment Fund Plc., was more skeptical of this explanation, noting that those who buy bitcoin to purchase ether still need to offload the asset, which then depresses its value.

As far as the data goes, ether transaction activity fluctuated significantly during the week, as 24-hour volume reached a high of $292.7m, nearly four times as much as the closing value of $76.7m, CoinMarketCap data reveals. In addition, this volume dropped more than 30% week-over-week.

As for the path ahead, there were observers who voiced a belief that bitcoin could enjoy further price increases in the short term amid bullish sentiment.

However, the recent price increases could simply reflect a period of heightened volatility and could therefore fail to hold up.

Tim Enneking, chairman of cryptocurrency investment manager EAM, emphasized that he expects traders to perhaps begin looking for opportunities to short the market, or that pessimism may creep back into the minds of traders.

"Going forward, I would expect bitcoin to test $500 on the downside before we get real stability,” he concluded.

Charles L. Bovaird II is a financial writer and consultant with strong knowledge of securities markets and investing concepts.

Follow Charles Bovaird on Twitter here.

Yuan image via Shutterstock

This article has been updated.