By Jemima Kelly
LONDON, Oct 11 (Reuters) - The price of web-based digital currency bitcoin jumped to a 10-week high on Tuesday, as worries about a further weakening of the yuan drove increased demand from China.
The Chinese currency hit a six-year low of 6.72 yuan per dollar on Tuesday -- the first day of trading following a week-long holiday -- after the central bank set a weaker guidance rate, fuelling market expectations that it may allow further depreciation.
State-owned Chinese banks leapt to defend the 6.7 level when it was breached in mid-July but have not been seen buying yuan heavily so far this week, adding to questions over whether China was allowing the currency to resume its descent, after steadying it through much of the summer ahead of major political events.
Bitcoin is a web-based "cryptocurrency" that can move money across the globe quickly and anonymously with no need for a central authority. That makes it attractive to those wanting to get around capital controls, such as China's.
Around 95 percent of all bitcoin trading is done via Chinese exchanges, according to industry website Coindesk, so any increase in demand from the Asian superpower tends to have a particularly significant impact.
"The Chinese central bank's decision not to intervene in stabilising the yuan means traders are running scared. Bitcoin is a port in the storm," said Charles Hayter, founder of digital currency website Cryptocompare.
Bitcoin jumped more than 3 percent against a dollar that was stronger against most central bank currencies, to a high of $637.21 on the Bitstamp exchange, its strongest since late July.
Some bitcoin experts said the web-based currency had also been given a boost by what might be the end of a stalemate over how to increase the capacity of the so-called "blocks" in which bitcoin is processed. Dubbed the "bitcoin civil war", the issue caused one senior developer to quit earlier this year.
A "Scaling Bitcoin" summit was held in Milan last week to address the issue, which attendees and bitcoin watchers said had brought some progress on the issue. Daily transaction volumes have been growing rapidly, hitting a record high above 280,000 last week.
"There were several technological advancements demonstrated, some of which could be promising avenues to increase the number of transactions that the bitcoin network could process," said Colin Platt, co-founder of blockchain start-up DPactum, and formerly head of blockchain at BNP Paribas.
"These new advancements could once again position bitcoin to continue to innovate and sustain higher transaction rates which could foster wider adoption," he added.
Reporting by Jemima Kelly; Graphic by Nigel Stephenson; Editing by Catherine Evans