With the digital currency bitcoin more than doubling its value since the start of the year, Japanese and South Korean buying helped drive the price of bitcoin to an all-time high this week, analysts and market practitioners said.
Website outages on Coinbase, the global bitcoin company that allows consumers to buy and sell bitcoins, was caused due to frenzied buying as the price peaked at $2,760.10 on Thursday. The price has since fallen back to $2,632.74.
According to CryptoCompare.com, bitcoin traded at a premium of more than $300 higher above the global average in Japan and South Korea which are among the largest markets for bitcoin globally.
Suggesting bitcoins are increasingly viewed among the general investing public as an alternative asset class much like gold, analysts said that the rally appeared to have been driven by new buying from smaller retail investors.
“There were some people that made a big profit in a short time and it got more media attention. Then even people that hadn’t known about virtual currencies began coming in, thinking it can be a way to make big money in a short time,” said Kim Jin-hyeong, an official at Coinone, a South Korean cryptocurrency services provider.
Investments in alternative assets like gold, silver and bitcoin was conducive as the global macroeconomic environment has seen sustained low interest rates, said Bobby Lee, CEO of BTCC in Shanghai, one of the world’s largest bitcoin exchanges.
With events like governments in both Japan and Korea introducing frameworks paving the way for bitcoin to be used on a par with national currencies, investor sentiment has been boosted by recent regulatory developments in the region.
Making it more attractive to traditional retail investors, in a key development that has spawned a number of new bitcoin exchanges in the country, the Japanese government recognized bitcoin as legal tender last month.
“In the past, bitcoin was traded only by the people who have been dealing with crypto-currencies. This year, regular people are starting to join, making trading so volatile,” said one Japan analyst.
The scarcity that is built into the global bitcoin market is also driving price spikes.
The total number of bitcoins that can ever be created is capped at 21 million globally meaning an inflow of new investors is able to dramatically inflate prices even though bitcoins are created through a computing process known as “mining”.
Real money can flood into the currency very quickly because using their normal debit or credit card and through an online trading platform such as Coinbase, the average person can easily purchase and trade bitcoins.
“Retail investors who might otherwise have traded stocks or an exchange traded fund are now trading bitcoins,” said Leonhard Weese, president of the Bitcoin Association Hong Kong and a bitcoin investor.
“Suddenly everyone is realising that there will only ever be 21 million bitcoins and that this might be there last chance to get into the market – and that is what is leading to these huge price spikes.”
(Adapted from Reuters)