Bitcoin’s 150% surge since the beginning of the year has caught the attention of “Mrs. Watanabe,” the metaphorical Japanese housewife investor, and a legion of South Korean retirees who’re hoping to escape rock-bottom interest rates by investing in cryptocurrencies, according to Reuters.
Retail investors in Asia, many of whom are already regular investors in stock and futures markets, are turning to bitcoin in droves. Trading volume on Asia-based exchanges exploded following a Japanese law that officially designated bitcoin as legal currency. And now that the largest Chinese exchanges have reinstated customer withdrawals, the bitcoin market in China will likely stabilize, and the price will likely rise as a result.
Bitcoin was recently trading in South Korea at a $400 premium to its value on US-based exchanges, in part due to tough money-laundering rules that make it difficult to move bitcoin in and out of those markets, Reuters reports.
One of the retail traders interviewed by Reuters said she started with bitcoin because she’s worried she won’t be able to rely on her pension.
"After I first heard about the bitcoin scheme, I was so excited I couldn't sleep. It's like buying a dream," said Mutsuko Higo, a 55-year-old Japanese social insurance and labor consultant who bought around 200,000 yen ($1800) worth of bitcoin in March to supplement her retirement savings."
"Everyone says we can't rely on Japanese pensions anymore," she said. "This worries me, so I started bitcoins."
Another trader noted that most South Korean buyers see bitcoin as an investment; few plan to use it for payments purposes.
The risks for these traders are high, Reuters says, alluding to the collapse of Mt. Gox, which led to hundreds of millions of dollars in losses for its customers.
The digital currency is largely unregulated in Asia. In Hong Kong, exchanges operate with a money-changer’s license, while in South Korea they are regulated like online shopping malls, Reuters says.
There’s also a burgeoning cottage industry of seminars, social media and blogs all designed to promote bitcoin or bitcoin-like schemes. The cryptocurrency world is rife with scams, and pyramid schemes are becoming increasingly common.
Police in South Korea last month uncovered a $55 million cryptocurrency pyramid scheme that sucked in thousands of homemakers, workers and self-employed businessmen seduced by slick marketing and promises of wealth, Reuters reported.
Seminars in Tokyo, Seoul and Hong Kong promote schemes that require investors to pay an upfront membership fee of as much as $9,000, according to Reuters. Investors in these scams are encouraged to promote the cryptocurrency and bring in new members in return for some bitcoins and other benefits.
One Tokyo scheme offered members-only shopping websites that accept bitcoin, 24-hour car assistance and computer problems, and bitcoin-based gifts when a member gets married, has a baby - or even dies, according to marketing materials seen by Reuters.
Leonhard Weese, president of the Bitcoin Association of Hong Kong and a bitcoin investor, warned amateur investors against speculating in the digital currency.
"Trading carries huge risk: there is no investor protection and plenty of market manipulation and insider trading. Some of the exchanges cannot be trusted in my opinion."
Regulators in China have already cracked down on money laundering at local exchanges. South Korea’s Financial Services Commission has set up a task force to explore regulating cryptocurrencies, but it has not set a timeline for publishing its conclusions, Reuters reported.
And Japan’s Financial Services Agency (FSA) supervises bitcoin exchanges, but not traders or investors.
"The government is not guaranteeing the value of cryptocurrencies. We are asking for bitcoin exchanges to fully explain the risk of sharp price moves," an FSA official told Reuters.
Bitcoin was trading $2,529 on Coinbase Sunday, while it traded at $2,593 on Bitflyer, one of the largest Japanese exchanges.
One Japanese finance blogger said his most popular article has been an explanation of bitcoin. Readership of the article doubled last month when bitcoin was on its record run.
Rachel Poole, a Hong Kong-based kindergarten teacher, said she read about bitcoin in the press, and bought five bitcoins in March for around HK$40,000 ($5,100) after studying blogs on the topic. She kept four as an investment and has made HK$12,000 tax-free trading the fifth after classes.
"I wish I'd done it earlier," she said.