Behind Cryptos’ Wild Ride: The Asian Factor

Posted by on May 29, 2017 4:00 am
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Categories: speculation

Volatility is the name of the cryptocurrency game. The king of all, Bitcoin, saw its value fall some $900 from May 26 to May 28, 2017, only to rise again. Are these wild rides about to change? A new regulatory regime is giving businesses and investors a fresh push to use the virtual currency.

Yet, there’s no parabolic Bitcoin rally without Japan. Bitcoin fever has hit the land of the rising sun. One of the leading reasons: new regulatory policies for Bitcoin in Japan are giving businesses and investors a fresh push to use the digital currency.

The move is partially the result of the nation’s experience with the 2014 collapse of Tokyo-based Mt. Gox, the formerly biggest Bitcoin trading site where 850,000 Bitcoin went missing after a cyberattack.

People in Japan have gained a lot of confidence in Bitcoin as a legal currency.

The new Japanese rules enacted by the Financial Services Agency went into effect April 1, establishing Bitcoin as a legitimate payment method by putting rules on businesses in the industry. They include minimum capital requirements, segregating customer accounts and monitoring potential criminal activity.

Japan is the world’s third-largest economy, and the yen is one of the world’s most-traded currencies. Technology and foreign exchange are two major businesses in Japan, and Bitcoin allows investors to combine both in one product.

Japan is poised to be the biggest Bitcoin and cryptocurrency market globally.

The flood of new money in Japan is resulting in price quotes on Japanese exchanges that are in some cases hundreds of dollars higher than on other exchanges. That gap is resulting in arbitrage opportunities — buying cheap on one exchange, selling at a profit on another — and helping to push the price up.

Japan’s experience contrasts with a loss of trading volumes in China. For several years, Bitcoin trading in China was unregulated. Without any rules, or even trading fees, Chinese Bitcoin exchanges were completely unrestrained. At its zenith, more than 90% of all Bitcoin trading was occurring in China.

That changed over the past year, as the People’s Bank of China forced the three biggest exchanges to adhere to anti-money-laundering rules and implement trading fees. The bank then forced the exchanges to halt Bitcoin withdrawals.

Much of the trading has since moved to Japan and also South Korea, where some businesses are now starting to accept Bitcoin. Individual investors who like Bitcoin’s anonymity and profit potential are also looking to buy.

It’s a no-brainer, really. These days, you hardly get any interest even if you put money in the bank. Many decide to put money bit by bit into virtual currency.

Some argue that Bitcoin prices have rallied too fast. With more cryptocurrency exchanges going online, offering a wider range of different virtual currencies and regulations kicking in, the party will end once Asian prices come back into line with Western markets.

With the new regulatory oversight from the FSA, this Bitcoin go-round could be different from the one when Mt. Gox was handling more than 70% of all Bitcoin trading around the world. The exchange collapsed in 2014, and creditors are still trying to recover funds.

The Bitcoin casino days are gone for good.

Or are they?