After crashing $500 from its intraday highs today, Bitcoin has bounced back $300 off its intraday lows extending gains into what is likely to be another frenetic Asian session. While there are numerous drivers of the recent action, 'scaling' and 'asian fever' are the greatest factors with Japanese and Korean premia exploding.
Of course in context today's intraday drop is de minimus...
But as CryptoCompare.com's founder Charles Hayter explains, while a lot of news outlets are reporting on the extraordinary rise in Bitcoin (Bitcoin has risen 160% over the last three months to reach a capitalisation of $45bn according to the CryptoCompare BTC/USD Index, Ethereum too has seen its market capitalisation jump 330% in the past three months to reach $20bn according to the CryptoCompare BTC/ETH Index), it is Japan, Korea and Asian interest that is causing the price to rise and dragging up Western prices on the back of regulatory moves as well as scaling.
This is a bubble but also a rerating - the question is the level of speculation as media begets more price rises and triggers more exposure and buying. The ICO phenomenon is contributing too as traders wash in and out of the major cryptos chasing and pumping the next ten bagger.
The party will end as Asian premia come back into line with Western markets or even drag them down as panic selling takes hold. The exact trigger is yet to be seen although last time it was Mt Gox.
Summary - Scaling & Asian Fever
The Bitcoin and Ethereum markets have seen global dislocation as price premia have appeared specifically on the JPY and KRW markets - Asian and more specifically Korean fever is taking hold. Coupled with this a tentative agreement on scaling has been announced from the Consensus Scaling conference in New York that should put to bed Bitcoin's civil war on how to evolve the network and stop the backlog of transactions.
So its a mixture of factors driving the price - the scaling solution is removing the negativity that surrounded bitcoin in the Western world but the Asian markets with their premia are dragging the price higher with their irrational exuberance.
- the scaling debate has been haunting bitcoin for the past 2 years - with clear water from a political standpoint it looks like bitcoin can move forward and scale to become a global payments network. That said we have been in this situation before where worries were mollified.
- Korean markets are buying Bitcoin at over $4000 - a $1400 premium or 50% premium to the USD price. Korean volumes hold 11% of total bitcoin trading.
- Ethereum is also trading at $316 dollars on Korean markets where the pair dominates trading witha 31% market share.
- Bitcoin Trading in Japan is occurring at a $3100 where the BTC-JPYaccounts for 31% of th global market.
- Ethereum is also trading at a 10% premium in Japan in comparison to the JPY markets.
After putting out a draft a few days ago which was to be known as the “Barry Sillbert agreement”, the Digital Currency Group (DCG) has issued its official proposal, revealing that miners and businesses came to a consensus to solve bitcoin’s underlying scaling issue.
The agreement was signed by a group of companies representing the bitcoin industry and community with 83.3 percent of hashing power, 20.5 million bitcoin wallets and 5.1 billion on-chain transaction volume, agreed to the activation of Segregated Witness (Segwit) and a 2MB hard fork within six months thereafter.
While this seems like a conclusion to the current scaling issues, many have raised technical concerns regarding the signalling of segwit which at bit 4 and is incompatible with the current segwit activation from core. According to the proposal SegWit would be activated at an 80% threshold, signaling at bit 4.
The prospect of having an hard fork implemented in six months has also alarmed some users who believe that this is not enough time to code, test and deploy said hard fork to increase the block size limit to 2 MB.
Nevertheless, several companies have committed to provide technical and engineering support to test and support the upgrade software, as well as to assist companies with preparing for the upgrades, including Abra, BitClub Netwowrk, Bitcoin.com, BitFury, BitGo, Bitmain, BitPay, Bloq, Circle, RSK Labs and Xapo.
While it is still unclear if the agreement can be implemented, politically speaking it solves all the current issues found in the scaling debate and brings back the essence of the Hong Kong agreement. Companies and pools that have opposed SegWit to support the BU protocol, like Bitcoin.com and Bitmain, have agreed to this compromise which means that we are definitely moving in the right direction.
Korea have caught the bitcoin and ethereum bug and are buying up large quantities of the Crypto Currency.
Perhaps key has been the level of Korean Chaebol uptake in the latest round of the Enterprise Ethereum Alliance.
The Enterprise Ethereum Alliance has more than tripled in size, with the group announcing 86 new members, including South Korean telecom Samsung, pharmaceuticals giant Merck, automaker Toyota, investor communications platform Broadridge, financial markets firm DTCC, and the Illinois Department of Financial and Professional Regulation, which oversees licensed businesses in the state.
Japan and JPY Premia
The Japanese have given bitcoin the greenlight as a currency and are looking to increase the rigour that their exchanges are subject too - all in all positive for the industry as it moves more mainstream.
Alongside you are seeing Chinese exchanges switching bank online after the PBoC halted withdrawals due to AML and KYC concerns in January this year. These exchanges have been trading at a steep discount for the past couple of months as money has essentially been trapped by the PBoC's diktats.
Coupled with this you also have various large conglomerates looking at the space with a raft of industry moving in the direction of bitcoin and offering it as a payment method.
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At the beginning of April, Japan announced bitcoin had become a legal payment method in the country.
Additionally, Ulmart, Russia's largest online retailer, said it would begin accepting bitcoin even though Russia had said it wouldn't explore the cryptocurrency until 2018.
The gains also seem to be boosted by speculation the US Securities and Exchange Commission could overturn its ruling on the Winklevoss twins' bitcoin exchange-traded fund.
And most recently, Fidelity's CEO Abigail Johnson lending some credibility to the crypto-currency, explaning how her firm was mining Bitcoin, and accepting payments in the virtual currency.
And finally, as a reminder, it appears Bitcoin is one of the only (un-rigged) assets in the world that is reflective of global policy and geopolitical uncertainty...