Bitcoin staged a rally over the weekend to hit a one-month high despite experts warning of a potentially volatile upcoming event for the cryptocurrency.
The digital currency hit a high of $4,867 Monday, its highest since Sept. 2 and before the China crackdown, according to data from industry website CoinDesk. Bitcoin last traded nearly 5 percent higher on the day at $4,821.
With Monday's gains, the digital currency had a market capitalization of $80 billion. Meanwhile, the prices of most other major digital currencies declined. Ethereum fell 4 percent, to $296, according to CoinDesk. The bitcoin offshoot, bitcoin cash, was one of the greatest decliners, falling nearly 13 percent, to $304, according to CoinMarketCap.
"There has been a rotation of money out of the lower-quality names and into bitcoin," Ronnie Moas, founder of Standpoint Research, told CNBC. He also said people are speculating that "bitcoin will rally following the upcoming fork as it did following the August 1 fork" into bitcoin and bitcoin cash.
A similar split is scheduled for mid-November.
Bitcoin three-month performance
Source: CoinDesk
As a result of Monday's gains, bitcoin held 51.5 percent of the total market capitalization of all digital currencies, up from around 46 percent on Sept. 2, according to CoinMarketCap.
The market share gains are "a positive key price indicator for bitcoin and has got traders bullish," Nolan Bauerle, director of research at CoinDesk, said in an email to CNBC.
Bauerle also attributed bitcoin's gains to indications that more developers are adopting an upgrade called SegWit, while the Chinese crackdown on bitcoin has opened opportunities for digital currency enthusiasts in other parts of the world.
Bitcoin has had a rocky few weeks. It hit an all-time high on September 2 of $5,013.91, before declining sharply to below $3,000 in the next two weeks.
Investors were concerned about the sharp price rise of bitcoin but also some of the regulatory clampdowns by China. The world's second-largest economy banned initial coin offerings (ICOs), which is a new way for cryptocurrency start-ups to raise funds by issuing digital tokens. The largest bitcoin exchanges in China have also shut down their operations there.
And at the same time, major business leaders have poured cold water over bitcoin. JPMorgan Chase CEO Jamie Dimon said bitcoin "is a fraud" last month.
Japan boost
But some of the negative sentiment has been offset by other positive developments in the industry.
China's state-backed Xinhua news agency also published a commentary piece last week that discussed how local authorities could allow digital currency exchanges to operate by requiring licenses.
Japan appears to be filling the void left by China with supportive regulation. Earlier this year, Japan legalized bitcoin, with major retailers beginning to accept it as a form of payment. And last month, the country's financial services watchdog recognized 11 companies as registered cryptocurrency exchange operators.
Institutional investors are also beginning to look at bitcoin more seriously. Goldman Sachs is considering the launch of a new trading operation focused on bitcoin and other digital currencies, a company official told CNBC last week.
"Bitcoin's rally is continuing off the back of a more certain regulatory environment across the world, most notably in Japan. This has encouraged more institutional funds to enter the market and we are finally seeing the effect of this additional liquidity," Aurélien Menant, founder and CEO of Gatecoin, told CNBC by email on Monday.
Volatility ahead
Menant told CNBC last week that bitcoin could get close to $6,000 by the end of the year, but short-term volatility could be ahead. That's because earlier this year, bitcoin underwent a split or "fork" which created another cryptocurrency called bitcoin cash.
That split happened due to technical changes in the underlying technology behind bitcoin, known as the blockchain. But that change, which is currently being implemented, could be rejected by a large section of the bitcoin community, which could actually lead to another fork.
"The forthcoming bitcoin fork in November will result in greater volatility and risk for this new asset class," Menant said.
— CNBC's Evelyn Cheng contributed to this report.
