It’s been more than a month since I last gave y’all an update on bitcoin and my, oh, my has a lot happened since!
The cryptocurrency has been setting one record high after another in the past few days and is up more than 80% from its lows this year. If you’re wondering why this is happening, here are 13 Reasons Why. Welcome to your tape.
Just kidding. I can only round up five big reasons for the bitcoin rally, and here they are:
1. Japanese gov’t accepted bitcoin as a legal form of payment
Digital currency experts are seeing several factors fueling the ongoing price surge, but majority are pointing to the Japanese government’s decision to recognize bitcoin as a legal form of payment back in April as the tipping point.
At that time, bitcoin was trading at roughly $1100 when Japan’s parliament passed a law that puts capital requirements in place, along with cybersecurity and operational checks, that would bring exchanges under anti-money laundering and know-your-customer (KYC) rules. This makes Japan the first major economy to officially elevate bitcoin to similar status as traditional financial securities or even fiat currencies.
As a result, more and more market participants were assured of the legitimacy of bitcoin and felt confident that another Mt. Gox-esque collapse could be avoided. This led to a surge in investor activity and increased integration among retailers, leading Japan’s bitcoin trading volumes to overtake that of the U.S. and China.
2. Expectations for SEC bitcoin ETF approval
A couple of weeks after Japan’s bitcoin law came into effect, the U.S. financial services watchdog announced that it’s ready to give the Winklevoss twins’ COIN ETF another shot.
Back in March, the SEC turned down this bitcoin ETF proposal and ruled that the largely unregulated nature of the cryptocurrency in other markets where it is also traded opens up a huge possibility for fraud and manipulation. This was followed by a few more rejected digital currency ETF applications before the regulator opened the door for further comment and a chance for the “Winklevi” to submit more requirements until May 15.
This revived hopes of an approval, which would pave the way for better market accessibility and higher liquidity for bitcoin, thereby driving up investor interest and volumes as it did in Japan. After all, having an ETF could allow the likes of asset management firms, retirement accounts, and pension funds to include bitcoin in their portfolios. Moreover, a nod of approval from the SEC could encourage financial regulators in other countries to follow suit.
3. Growth slowdown in China
Meanwhile in China, which still holds the third largest stake in the global bitcoin market, signs of a slowdown in growth are emerging. The latest batch of industry PMI readings both from the government and a private firm have reflected weakening expansion in the manufacturing and services sectors.
Because of this, Chinese authorities seem to be in panic mode once more, issuing another round of directives aimed at curbing speculative activity in the stock market. Perhaps they’re keen on avoiding a repeat of the Chinese stock market meltdown a couple of years back?
Either way, investors were still spooked by the central bank’s decision to inject 140 billion CNY worth of liquidity in the financial markets earlier this month, leading them to flee to alternative assets like bitcoin.
4. Persistent geopolitical risks
As in my earlier bitcoin update, geopolitical risks are still in play these days, encouraging investors to seek higher returns outside of traditional markets like stocks and commodities.
Even though the French elections have already gone by, political uncertainties continue to dominate the headlines and the spotlight has now shifted to goings-on in North Korea. Tensions with the U.S. government and the likelihood of causing some damage in the Asian region have been heightened after a North Korean ambassador said that they won’t be stopping their nuclear launch tests anytime soon.
While global stock markets still managed to squeeze out some gains lately, these returns have been dwarfed by rallies in bitcoin and other cryptocurrencies. Did I mention that ethereum (ETH) is up 900% so far this year?
5. “Hard fork” fears put to rest?
As for the bitcoin industry itself, bitcoin holders no longer seem to be as worried about “hard fork” inconsistencies as they used to be earlier this year. This is probably because proponents have already reached an agreement to merge existing versions of the bitcoin software in July, addressing potential incompatibilities that may arise from scaling.
If that’s a lot of mumbo-jumbo for you, it basically means that bitcoin developers have been at odds when it comes to accommodating the rising number of transactions on the blockchain, which is the ledger that keeps track of changes in bitcoin ownership. This debate has been going on for years and the lack of a central bitcoin authority has made it nearly impossible to reach a decision, bringing the network to a point where two separate versions of the cryptocurrency might exist.
Now this could be extra tricky for exchanges or firms that facilitate bitcoin transactions because it would be similar to having the cryptocurrency exist like Spock (Spocks?) in a parallel universe. But with the creators of Bitcoin Core and Bitcoin Unlimited making a pinky promise for a flag-day merge on July 4, bitcoin fans aren’t seeing much roadblocks for the digital currency on its northbound route.