The price of the digital currency bitcoin is once again testing its all-time highs as a shake-up in China gives a boost to the Japanese cryptocurrency market and speculation mounts about a possible bitcoin exchange-traded fund.
Bitcoin on Wednesday traded as high as $1,125, according to Coindesk’s Bitcoin Price Index, approaching its intraday high of $1,150, set on Jan. 5. That prior high, though, was the start of a steep drop. From Jan 5 to Jan. 7, it fell 28%, trading down to $832. Less than two months later, it’s nearing the peak again, putting both bitcoin’s resiliency and volatility on display.
Bitcoin is a stateless digital currency that is maintained across a decentralized network of interconnected computers. Its central features are encrypted accounts that protect user anonymity, and a central, open ledger that makes every transaction visible to all, and prevents counterfeiting. Since its launch in 2009, the amount of bitcoin in circulation has risen in value from zero to more than $18 billion.
The bitcoin market got a big shake-up over the past few months, after the People’s Bank of China started slowly putting the brakes on Chinese bitcoin exchanges. It forced the exchanges to halt bitcoin-denominated withdrawals until they upgraded their systems to conform to so-called KYC/AML – Know Your Customer/Anti-Money Laundering – regulations. The exchanges were also forced into enacting trading fees; previously there were no trading fees on Chinese exchanges, which attracted speculative trading.
The crackdown pushed a lot of that Chinese trading to Japan. The Japanese yen now represents 56% of trading volume, the largest for any currency, according to the research site Crypto Compare. The U.S. dollar is second with, 24% of volume. The yuan comprises 9% of trading volume. Before the crackdown, the yuan comprised as much as 98% of trading volume.
It’s been a mixed blessing, said Mike Kayamori, CEO of Japanese bitcoin exchange Quoine. The exchange has seen a surge in trading volume, but is looking to build a stable, lasting business that can plug into the wider currency-trading market, not just serve as a platform for bitcoin speculators. “The bitcoin casino days are over,” he said.
Another development driving bitcoin’s growth in Japan is the expected adoption of new regulations this spring from the country’s Financial Services Agency that would bring bitcoin businesses under its umbrella. This is widely seen as a positive development that will bring legitimacy to businesses that adhere to the rules.
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Back in the U.S., another story driving the price is the possible approval of a bitcoin ETF, which would give investors another avenue for investing in the currency. There are currently three proposals in front of the SEC, and all of them or none of them may eventually get approved. Cameron and Tyler Winklevoss, well-known for their fight with Mark Zuckerberg over the creation of Facebook, first proposed their bitcoin ETF in 2013. The SEC has a self-imposed March 11 deadline to approve it. The agency has not commented publicly on it, and declined to comment on it this week.
The other proposals are from Grayscale Investments, owned by well-known bitcoin investor Barry Silbert, and a firm called SolidX.
Needham technology analyst Spencer Bogart has said that the odds of approval are probably lower than the bitcoin industry thinks – he put them at less than 25% – but if it does get approved, it would be a very large win for bitcoin. He estimated $300 million could flow into bitcoin in the first week – significant for an asset that trades roughly $40 million a day.
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