Following bitcoin’s meteoric rise to over $2,700 in value, the cryptocurrency’s volatile ebb and flow has not stemmed the bullish attitude of Asian markets (particularly South Korea and Japan). This approach, combined with actions from central banks, governments, and multinational corporations, is representative of a flood of new, more conventional investors and consumers entering the bitcoin market. Reuters reported that, in the case of the large South Korean and Japanese markets, bitcoins were trading at more than $300 over the global average. The skyrocketing price could be attributed to the fact that the number of bitcoins is hard-capped at 21 million, meaning that increased demand and static supply intuitively cause a significant rise in the price of the cryptocurrency. Despite large hedge funds remaining lukewarm, why are more general, less specialized investors deciding to jump on the bitcoin train?
In spite of volatility and warnings that a few owners with heavy exposure could influence the Bitcoin market extensively, Japan made a big step forward in April and decided to start recognizing bitcoin as legal tender, writes Rachel Cao of CNBC. This adoption, which is the first of its kind, greatly assuaged investor concerns about potential stability issues and increased the attractiveness of the cryptocurrency to business owners and retailers who can now accept is as a standard method of payment.
South Korea saw even higher spikes up to almost $3900 per bitcoin on May 24, according to Bithumb.com, one of the larger Korean exchange sites. These significant premiums paid on the cryptocurrency followed a report released by a team of researchers at the Bank of Korea which described the potential beenfits of a “dual currency regime” with both fiat and digital currency. The fundamental concept behind this framework is that the two currencies would compete, in a sense, and because of this there would be no “crowding out” – that is, one currency would not completely take the place of another.
Chung Ji-sung of Pulse News in South Korea points out that already we have seen the Korean government take measures to increase its already massive bitcoin remittance market by lowering equity capital requirements from 2 billion KRW to 1 billion KRW. With an already substantial stake of around $15 billion of combined flows by World Bank estimates in the digital currency market, we may see the South Korean government become the next major state to follow in Japan’s footsteps.
Some of the largest problems that plagued the Bitcoin market had to do with its volatility, which is evidenced by the significant swings it has seen just in the past week, even though the currency itself continues to appreciate on average. Despite these swings, which are in part caused by a massive amount of demand for the supply-limited cryptocurrency, the recent actions made by both Japan and South Korea have proven positive legitimizing steps for Bitcoin as a whole. While these actions certainly help with perceived validity, Gemma Acton and Arjun Kharpal of CNBC reported that veteran hedge-fund managers still appear to be skeptical as to whether the cryptocurrency is a worthwhile asset class to invest in due to security and perceptive concerns. The article mentions that if central banks, governments, and large commercial banks begin widely using Blockchain technology and bitcoin especially, there may be more widespread interest from more wealthy classes of investors, who may currently be skeptical towards the cryptocurrency.
These legitimizing government acts are not only spurring investor confidence in the currency, which can help ward off negative speculation, but are also working in tandem with firms like Toyota. Kim Nash of The Wall Street Journal writes that the car manufacturer’s research group, called the Toyota Research Institute (TRI) has started to use Blockchain technology, which is the basis for bitcoin, to pioneer several apps that deal with everything from ridesharing, carpooling, and even short-term insurance. These apps, said the TRI in a press conference at Consensus 2017, can help users monetize and personalize things like insurance contracts based on good driving habits, or having their car used as part of a blockchain-based car sharing app.
As the TRI pursues further research, blockchain technology may be the future vehicle by which data is transmitted by these revolutionary new apps. This progress is particularly noteworthy in regards to new innovations like self-driving cars, an industry where we see the TRI partnering with German startup BigchainDB GmbH, writes Jonathan Shieber of TechCrunch. However, others, like Joseph Adinolfi of Marketwatch, say that Blockchain technology has issues such as scalability and sluggishness due to more users flooding the existing infrastructure. Blockchain, which requires users to confirm their individual bitcoin transactions on both ends is slowed substantially for regular users, who sometimes had to wait “nearly 8 hours” for a standard transaction to go through on February 3.
On the other hand, these measures, which are meant to deter hackers, may be a boon, particularly in a digital climate where cybersecurity will be emphasized. Even though Blockchain and bitcoin technologies are still new, political parties like the Liberal Alliance in Denmark have used the technology in their voting procedures, says Ben Dickson of venturebeat.com. American voter turnout has been quite low and the usage of blockchain-based voting could substantially increase turnout if it was well-implemented, user-friendly, and had institutional support, all of which seem more likely given the increasing demand and strong governmental support in some of Bitcoin’s largest markets.
While Blockchain and bitcoin technologies may not be at the forefront of consumer accessibility yet, the fact that large firms like Toyota and sovereign governments like those of Japan and South Korea are working to further integrate the currency and the technology behind it are telltale signs that bitcoin is going to continue to make substantial headway in the years to come.
Read More here:
“Japan, South Korea drive global bitcoin prices as retail investor pile in” (Michelle Price, John Ruwitch, Joyce Lee and Hideyuki Sano, Reuters)
“Seoul to ease equity capital criteria for bitcoin-mediated foreign currency transfer service” (Chung Ji-sung, Pulse News)
“Bitcoin is outperforming major assets but hedge funds are still staying away from the cryptocurrency” (Gemma Acton and Arjun Kharpal, CNBC)
“Toyota Demonstrates Blockchain Apps for the Car Business” (Kim Nash, Wall Street Journal)
“The biggest threat facing bitcoin has nothing to do with the SEC” (Joseph Adinolfi, Marketwatch)