Japan, South Korea drive global bitcoin prices as retail investors pile in
HONG KONG: Japanese and South Korean buying helped drive the price of bitcoin to an all-time high this week, with the digital currency more than doubling its value since the start of the year, analysts and market practitioners said on Friday.
Frenzied buying as the price peaked at $2,760.10 on Thursday caused website outages on Coinbase, the global bitcoin company that allows consumers to buy and sell bitcoins. The price has since fallen back to $2,632.74.
In Japan and South Korea, among the largest markets for bitcoin globally, bitcoin traded at a premium of more than $300 higher above the global average, according to CryptoCompare.com.
The rally appeared to have been driven by new buying from smaller retail investors, suggesting bitcoins are increasingly viewed among the general investing public as an alternative asset class much like gold, analysts said.
“There were some people that made a big profit in a short time and it got more media attention. Then even people that had not known about virtual currencies began coming in, thinking it can be a way to make big money in a short time,” said Kim Jin- hyeong, an official at Coinone, a South Korean cryptocurrency services provider.
Bobby Lee, CEO of BTCC in Shanghai, one of the world’s largest bitcoin exchanges, said the global macroeconomic environment, which has seen sustained low interest rates, was conducive to investments in alternative assets like gold, silver and bitcoin.
Investor sentiment has been boosted by recent regulatory developments in the region, with governments in both Japan and Korea introducing frameworks paving the way for bitcoin to be used on a par with national currencies.
Last month, the Japanese government recognized bitcoin as legal tender, in a key development that has spawned a number of new bitcoin exchanges in the country, making it more attractive to traditional retail investors.
“In the past, bitcoin was traded only by the people who have been dealing with crypto-currencies. This year, regular people are starting to join, making trading so volatile,” said one Japan analyst.
Price spikes are also being driven by the
Yet analysts have mentioned several worries. Some have expressed concerns over the lack of exit strategy, for which there is, in my view, no need, for two reasons. First, we need to see how the supply-demand equation develops over the next six months and then consider corrective measures, where and when they are needed. In the interim, the Joint Ministerial Monitoring Committee ( JMMC) reviews the situation on an ongoing basis, meets every other month and can at any time make recommendations.
Analysts were also concerned that the Gulf producers’ output cuts were slow to be reflected in exports. We can expect that to be remedied, once we see the seasonally higher summer demand in Gulf countries.
There was also anxiety over whether Russia will stay the course for the whole duration of the scarcity that is built into the global bitcoin market.
Bitcoins are created through a computing process known as “mining” but the total number of bitcoins that can ever be created is capped at 21 million globally meaning an inflow of new investors is able to dramatically inflate prices.
The overall oil-output cut agreement has been described as “historic” by OPEC President and Saudi Energy Minister Khalid Al-Falih. He recently said that the production cuts were just one aspect of cooperation between OPEC and the 10 participating non-OPEC oil-producing countries going forward, with a draft framework of cooperation apparently out for review.
All in all, it was pivotal for the deal to be renewed, because it brought stability and predictability to the markets when it was officially announced half a year back. A failure to renew would have sent markets into turmoil. True, the markets did not respond as favorably as OPEC had hoped. But markets will always be volatile and prone to vagaries. We should look at the medium-term trend, and there we are in a good place. The agreement has brought a little more predictability to the market, which is very important for all the stakeholders in this space. Cornelia Meyer is a business consultant, macro-economist and energy expert. She can be reached on Twitter @MeyerResources