Hugh Harsono
Digital currency prices have soared recently, with reports from the past few months showing enormous valuation increases for currencies across the board.
Bitcoin, Ripple, and Ethereum have all experienced exponential growth, with Bitcoin prices rising to $2,588, Ripple reaching a market cap of nearly $10 billion, and Ethereum growing to a total market cap of over $20 billion.
With supply and demand for digital currencies extremely high in both Japan and China, it is no surprise as to why these two countries are helping to fuel the rise in cryptocurrency prices.
Ability to Withdraw in China?
With access to cheap hardware and electricity, China is the prime breeding ground for mining cryptocurencies, with huge mining pools run by exchanges such as BTCC accounting for more than 60% of the bitcoin network’s collective hashrate.
However, the beginning of 2017 saw a governmental crackdown of Chinese-based digital currency exchanges, causing a suspension in all withdrawals, causing the market to suffer heavily with China being one of the top bitcoin markets in terms of trading volume.
Recently, Caixin reported potential changes in the governmental regulatory framework to allow withdrawals last month, specifically mentioning top exchanges OKcoin, Huobi, and BTCC. This potential good news has increased consumer confidence in cryptocurrencies, contributing to their associated rise in value.
Japan: Stepping in to Fill the Chinese Void
With cryptocurrency liquidity in China experienced stagnation earlier this year, the Japanese bitcoin market exploded, with demand reaching new heights.
Previously, Japan represented barely 1% of total bitcoin trading volume, but in recent months estimates put this number as high as 6%, with Japan accounting for nearly 55% of total trade volume on some trading days. This increase in JPY bitcoin trading due to the Chinese inability to liquidate has fueled growth in the digital currency market globally.
Solid Alternative Compared to Government Policy
In China, the tightly-controlled yuan is another reason why cryptocurrency prices have experienced their unprecedented rise in value. The Chinese government has total control over the yuan’s valuation, traditionally devaluing the yuan to give itself an international trade advantage when the government saw fit.
With the growing amount of private independent wealth in China, cryptocurrency has become viable as an alternative asset class. And cryptocurrencies are being seen as more accessible, less volatile, and increasingly stable, contributing to their recent growth in value.
Meanwhile, the Bank of Japan’s policy of quantitative easing has resulted in very low, and sometimes even negative interest rates, also caused digital currency values to rise.
The Japanese government’s QE policy, intended to spur economic growth, has resulted in significant deflation for the yen, causing a similar decrease in investor confidence in this currency. With no end in sight for this form of Japanese monetary policy, digital currencies have and are currently being used as an alternative asset class, driving their rise in value.
Virtual currencies are quickly being seen as a better asset class by local investors, who fear the volatility of government interference in their specific economies.
Institutional Acceptance of Digital Currency
The rise in digital currency values can also be attributed to institutional acceptance of cryptocurrencies. The recent conclusion of the Global Blockchain Financial Summit in Hangzhou saw intense interest from reputable institutions like Peking University, which is creating an Ethereum center to work on direct application use and protocol improvements in China.
The Royal Chinese Mint, a downtrace unit of the People’s Bank of China (PBoC) dedicated to its electronic banking mission, has even actively promoted the application of blockchain technology, going as far as to allocate resources and developers in experimentation to digitize the yuan.
In Japan, multiple large institutions are now beginning to accept digital currency as a transactional entity, validating its use to the Japanese population as a whole. On the market front,bitFlyer, Japan’s largest exchange, is currently backed by all three of Japan’s megabanks: MUFJ, Mizuho, and SMBC.
On the consumer/retail side, influential electronics retailer Bic Camera has partnered with bitFlyer to begin acceptance of bitcoin at its retail locations. Additionally, Recruit Lifestyle, part of HR conglomerate Recruit Holdings, reported a new partnership with exchange Coincheck to use as part of a point-of-sale implementation program. The acceptance of digital currencies by these reputable groups have helped fuel confidence in digital currencies for daily transactions by the Japanese.
This institutional acceptance of digital currencies by powerful organizations in both China and Japan have allowed cryptocurrencies’ values to rise as a whole.
Governmental Acceptance of Cryptocurrency
It is no secret that the Chinese government has taken steps to regulate digital currency transactions, with their scrutiny and initiatives causing a drop in bitcoin prices to around $1,000 just several months ago.
However, the very fact that the PBoC is seeking to regulate this industry simply proves how viable it is as a legitimate transaction entity, with the Chinese government even taking steps to build their own digital currency.
With the announcement of potential withdrawals of bitcoin on the horizon, the PBoC have just completed a trial run of their own digital currency based on blockchain technology, with participation from major institutions such as the Bank of China and the Industrial and Commercial Bank of China, as well as China’s first online bank WeBank.
The Japanese government has also taken huge steps in the acceptance of digital currencies as legal forms of tender, with Japan legally classifying bitcoin as a form of payment just on April 1st.
Ahead of China, Japan has already begun licensure procedures for digital currency exchanges, to be operated under the watchful eye of the government’s Financial Services Agency, with market leaders such as bitFlyer already announcing plans to apply for said license, further driving investor confidence in the Japanese market and beyond.
Additionally, the Japanese government announced that the sale of virtual currency under the new Fund Settlement Law would be exempt from the Japanese Consumption Tax (8%), further driving bitcoin growth as an investment vehicle.
The acceptance of virtual currencies by both the Chinese and Japanese governments are driving cryptocurrency growth, with China on the cusp of establishing its own currency, and Japan regulating bitcoin as true legal payment.
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