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Bitcoin’s surge past $1500 & its welcome in Japan suggest this is not a blip

Source: Tiger Pixel. https://www.flickr.com/photos/tigerpixel/

The future’s bright, the future’s bitcoin. The digital currency was the subject of a lot of media hype when it surpassed gold last February and “broke through” to $1,210.82. That number now seems pitiful in comparison to today’s weighted XBX index of $1,552.71, or even Hong Kong-based trading platform, Bitfinex’s, spot price of $1624.11.

To get some perspective on how bitcoin has been gaining, the XBX spot price was sitting at $1376.54 at midnight Monday. Since then it has received a boost of nearly $250 in less than four days.

Tradeblock’s weighted XBX index, showing the gains since the beginning of the week

Despite its continuing and renowned volatility, a more consistent price rise seems more palatable after the numerous challenges that bitcoin suffered earlier in the year.

The first of these was a clampdown by the Chinese authorities in February. China accounts for around 42% of all bitcoin transactions so a clampdown was worrying for those holding the cryptocurrency.

A rejection of the so-called bitcoin ETF (The Winklevoss Bitcoin Trust) by the  U.S. Securities and Exchange Commission in March also stemmed hopes for capital inflows. The project was created by the same twins who took on Mark Zuckerberg in a spat over who was responsible for Facebook’s creation.

A month later Bitfinex saw controversy when Wells Fargo suspended the wire operations needed to transfer US Dollars to Bitfinex’s customers. Wells Fargo’s decision means wire transfers are experiencing severe delays and the exchange has been severely disrupted. Sequentially bitcoin exchange listing Tradeblock has dropped them from their listing in favour of San Francisco-based Kraken.

However, despite these setbacks Atlas Pulse’s Charlie Morris believes the price tendency of the cryptocurrency is not related to such one-off events, rather steady, long-term improvements in the fundamentals. Writing last week Morris believes volatility is dropping too: “bitcoin volatility is down to 40%. A few more days of calm will see this drop below 30%. All the best trading set-ups have occurred from periods of low volatility. High volatility on the other hand has led to sharp reversals. This is bullish and there is no overhead resistance as bitcoin moves into fresh price territory.”

However, the “fundamental fair value”, perhaps better understood as the trend value, is subject to the limit on transaction amounts in a given period of time. As it could be categorised as a medium of exchange or a currency, bitcoin is subject to the network effect, where the value of an asset depends on others also using it. Bitcoin does not have the luxury of being a nationally instituted, legally-bound currency such as the euro or dollars, so price can be significantly affected by network confidence, or lack of.

On the flipside though, it’s possible to say that as the volume of trades increase so does the long-term value of bitcoin. Once the network frees up space for higher transaction amounts, the scope for bitcoin to become self-sustaining increases.

This may well be about to manifest itself in Japan, where, juxtaposed to China’s clampdown, bitcoin is flourishing. A source close to the Japanese monetary establishment reported that the coming months will see more than 200,000 stores  launch cash registers that accept mobile app contact payment systems which could cater for bitcoin.

In April it became law in Japan that virtual currency dealers must register with the authorities. This is widely perceived as increasing the acceptance of virtual currency in Japan.  One source said about 18 such companies are making preparations for registering and some estimates put the virtual currency market in Japan at JPY4 trillion.

There seems to be a growing appetite for alternative currencies in Japan. This month, Mitsubishi UFJ Financial Group (Japan’s largest financial group and one of the world’s largest banks) began a trial of its own virtual currency called MUFG Coin (Yen 1 = 1 MUFG Coin).  This coin will, like bitcoin, will be based on blockchain with transactions made via an app.

Japan’s uptake of bitcoin is no surprise, given its tech-savvy populace.  If this trend continues and the network transcends trading limits then price hikes like this don’t have to be a blip. Although the innovation bitcoin has inspired, such as that made by Mitsubishi UFJ Financial Group, suggest it could be a phenomenon surpassed by its prodigies.    

Picture source: Tiger Pixel. https://www.flickr.com/photos/tigerpixel/

Link to this article: : http://www.goldmadesimplenews.com/analysis/bitcoins-surge-past-1500-its-welcome-in-japan-suggest-this-is-not-a-blip-13119/

Posted by on May 5 2017. Filed under Analysis, Gold News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

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