"China has the potential of really making or breaking bitcoin and its acceptance," Zennon Kapron, managing director of financial consulting and research firm Kapron Asia said at the 2013 bitcoin Singapore conference on Friday.
Bitcoin has continued to test fresh highs even after the shutdown of Silk Road - an online black market for illegal products - on October 1, where it was often used to purchase goods. And analysts say the reason for that the digital currency's growing popularity in China, the world's second biggest economy.
"There are two things affecting bitcoin in China," Linke Yang, co-founder and vice president of BTC China - the world's largest bitcoin exchange by volume - told CNBC on the sidelines of the conference.
"One is that there are a lot of [bitcoin] miners in China," Yang said, referring to those participating in the process of adding transaction records to bitcoin's public ledger and who can earn bitcoins for their efforts.
"The second is that, traditionally, high net-worth individuals and investors first go to the property market to invest and then the stock market, but since the property market is capped and controlled and stocks maybe aren't doing so well that's changing," Yang said. "After we had the China Central Television piece [on bitcoin in March] people here know about bitcoin and are putting their money into it."
(Read more: Winklevosses: Bitcoin worth at least 100 times more )
Kyle Drake, founder of CoinPunk, an open source hybrid web wallet agreed: "Investors are starting to opt for alternative investments such as bitcoin amid concerns that traditional investments such as the housing market are becoming increasingly risky."
According to Drake, Chinese demand is largely investment driven. He noted that there currently isn't much use for bitcoin as a means of purchasing goods and services in China.
High net worth individuals also use bitcoin as a way to get money out of China, Kapron said. While such individuals often have the means to skirt rules limiting nationals from taking more than $50,000 out of China a year, Kapron noted that bitcoin has become a popular alternative given how quick and discreet transactions are.
With the U.S. Senate Committee on Homeland Security and Governmental Affairs scheduled to discuss virtual currencies at a hearing next week, the potential for regulation hangs over the bitcoin market.
Chicago Federal Reserve senior economist Francois Velde wrote last week that "should bitcoin become widely accepted, it is unlikely that it will remain free of government intervention, if only because the governance of the bitcoin code and network is opaque and vulnerable."
Yet, Chinese authorities have not taken a stance on bitcoin, a stark contrast with the country's stringent investment regulations.
(Read more: Peter Schiff calls bitcoin bubble tulip mania 2.0 )
"When you talk about Bitcoin in terms of absolute value and volume it's still not that big... In the Chinese government's view it's still not on the radar, they don't care about it," BTC China's Yang said.
"Bitcoin isn't affecting the renimbi's value so they're not going to look at it right now. In the future we're sure there will be regulations, it depends on how the U.S. and Europe go," he added.
"If China made moves on Bitcoin on the regulatory front the U.S. would almost be forced to follow to a certain extent because there's such a large economic connection between the two [countries]," Kapron from Kapron Asia said.
(Read more: Bitcoin is back: Online currency gaining traction )
However, he noted "Chinese regulators really aren't taking a stance on Bitcoin right now because they're still trying to figure out what the impact is."
Kapron highlighted that in October Shanda Group's real-estate development arm accepted Bitcoin payments for its first real estate investment project. Because Bitcoin is not taxable, if this practice became widespread and started eroding China's tax revenues, authorities would step in, he said.
Taking on the dollar
One popular opinion among speakers and attendees at the Singapore conference was that China sees Bitcoin as something that can take some of the shine off of the U.S. dollar.
"China realizes that the yuan has to clear a lot of hurdles before it can become a reserve currency. If people start using and holding more Bitcoins in place of the dollar, it would likely lead to a less U.S.-centric global economy and that's what China wants," CoinPunk's Drake said.
However, Kapron played this view down noting that a lot of Chinese investment is in held in U.S. dollar denominated assets. China, for instance, is the biggest foreign holder of U.S. Treasurys.
As for the future of bitcoin, BTC China's Yang said: "Anything is possible... bitcoin is not going to replace the dollar or the yuan, but it's going to be another option."
- By CNBC's John Phillips. Follow him on Twitter: @J_Phillips_CNBC
image: © Zach Copley