Bitcoin Spikes After BoJ's Kuroda Praises Cryptocurrencies

Following the 'good' news that G-20 will not be cracking down on cryptos, removing the FUD from the weekend, Bitcoin and its peers are extending gains after Bank of Japan's Governor Haruhiko Kuroda told reporters in Buenos Aires at the G-20 meeting of central bankers and finance ministers that "cryptocurrencies can be a plus for the financial system."

 

From Friday's close, Bitcoin is now green...

 

As a reminder, in case you were wondering,  here is why Kuroda wants a strong Bitcoin.

In December, BOJ governor Haruhiko Kuroda once again refused to slam the cryptocurrency as fraud, as so many of his peers have done, and instead merely expressed an opinion that current Bitcoin market movements were the result of speculative trading. He also commented that price movements were abnormal, even if clearly beneficial as the below analysis reveals.

In January, when Nomura analyst Yoshiyuki Suimon went the extra step of trying to quantify the actual profits, whether paper or realized, earned by Japan's Mr. Watanabe et al. This is what he found:


Figure 3 shows Bitcoin market cap and market cap divided by the weighting of yen-based trades. Assuming that the weighting of yen-based trades is equivalent to Bitcoin holdings by Japanese people, we estimate that Japanese people hold Bitcoin with a market cap of about ¥5.1trn. Assuming that the bulk of this ¥5.1trn belongs to Japanese investors, the scale of this increase in assets can hardly be ignored.

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According to a 27 December 2017 Nikkei article, the number of Japanese people holding Bitcoin has reached 1mn, and assuming average holdings of 3-4 Bitcoin per person, this is broadly consistent with our estimate.

Meanwhile, the Bitcoin price rose by around ¥866,000 between Apr-Jun 2017 and Oct- Dec 2017, on which basis we estimate unrealized gains on Bitcoin held by Japanese people of roughly ¥3.2trn (3.7mn × ¥866,000).


This brings us to the next logical step, the one we have hinted repeatedly is what one or more central banks may well be after, namely the "wealth effect" generated by bitcoin appreciation, and the resultant boost to consumer spending, and therefore GDP, which a global cryptocurrency bubble would enable.


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