Here we go again. After a long stretch in which the price of bitcoin held stable, the world’s most famous digital currency is on the move again—and this time it’s heading straight up. It’s also a remarkable improvement from a year ago when the currency was in the gutter. On June 1, 2015, one could buy a bitcoin for $226. To get the flavor the recent uptick, here is a screenshot from Coindesk’s price index, showing prices over $16,000.00!
So what’s behind the recent surge? It’s hard to say for certain since the workings of bitcoin are often inscrutable to outsiders, while those who are in the know typically have an agenda to push the price up or down. That said, here are three explanations for the current price jump.
Reason 1: Mining bitcoin is about to get more expensive
Recall that bitcoin is “mined” by people with specialized computers that solve cryptographic puzzles. (This process also serves to provide a record of bitcoin transactions.) In return for solving the puzzle, the miners receive 25 bitcoins.
The nature of bitcoin is deflationary, however, meaning that fewer bitcoins are mined as time goes on. Critically, at some point in the near future, the reward for miners will drop from 25 bitcoins to 12.5 bitcoins. It’s unclear how this price cut, which will take place when bitcoin block 420,000 is mined (probably in the coming weeks), will affect the price of in the market. But several news reports claim the recent surge in the price may be driven in part by the impending stress on the mining supply.
Reason 2: Hype over a new digital currency is reigniting interest in bitcoin
Tech types have been buzzing about the emergence of Ethereum, a new blockchain technology that is winning big support from banks and venture capitalists. You can read a good explainer here, but the short version is that many think Ethereum is faster and more reliable than bitcoin, and could even supplant it as the pre-eminent digital currency.
The emergence of a rival currency might, of course, seem bad for bitcoin. A Quartz article asks, however, if a price surge for ethereum might instead serve to rub of on bitcoin. But so far, there is little evidence that the price of the two currencies is strongly correlated.
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Reason 3: China, China, China
This seems the most convincing explanation for the bitcoin surge. According to the Wall Street Journal:
Huobi and OKCoin, two Chinese exchanges, now collectively account for some 92% of global trading in bitcoin. The surge in bitcoin buying this weekend could be the latest sign of how Chinese investors are moving money between asset classes quickly in search of high returns.
Goings-on in China have driven bitcoin volatility in the past, and it stands to reason that this is what’s going on again.
Meanwhile, comments on Reddit and Twitter from those in the know not only point to a Chinese investor effect, but also raise the possibility that the effect won’t last. This will occur if the bitcoin buying just turns out to be a way-station on the way to other assets.
Bitcoin is About to Explode
Unbeknownst to most investors, Bitcoin spent the last month fighting for its life. For those of you unfamiliar with Bitcoin, it’s a landmark digital asset that catapulted past the value of gold earlier this year. It’s also arguably one of the most profitable investments in human history, making investors upwards of five-digit gains. But in the past month, Bitcoin’s future was draped in uncertainty. The digital coin plummeted from an all-time high of $2,955 in June to $1,850 on July 15th.
But now — because of one momentous change — Bitcoin could launch to a never-before-seen high. You see, Bitcoin was dropping because its entire future was hinged on a single decision — a decision that was scheduled to take place August 1st. Now that decision has arrived early, positioning Bitcoin on the precipice of meteoric growth. And with the last wall between Bitcoin and long-term growth about to fall, investors are rushing to get in. All of this means we could see the $20,000 Bitcoin some analysts predicted sooner than expected. If you want to make profits on Bitcoin, now is the time to start paying attention.
Bitcoin’s Role as a Global Asset
It’s no secret that Bitcoin is rapidly becoming the most profitable investment in human history. If you’d invested a mere $100 in 2010, you would be worth $75 million. As unbelievable as that may be. It’s true. And those profits are still available — Bitcoin is up over 300% since 2016. That said, Bitcoin — and the rest of the digital currency market — remains murky to many investors.
Written by Alexandra Perry & Jeff John Roberts