Monday, 5 June 2017

Bitcoin's Changing Landscape of Geography

As i mentioned in this previous post about the Japanese Legalization of Bitcoin, which leads to a huge increase in Japanese money flowing into Bitcoin (as well as Korean money, but to a smaller degree). This sudden new money moving into Bitcoin market causes the corresponding sudden Bitcoin price's parabolic rise.

The U.S. Congressional Hearing is very important because it occurred in the nascent stage of Bitcoin development, but the Japanese legalization is in a sense more important. Because while U.S. Congressional Hearing is a kind of nod from U.S. government. I.e. that the U.S. government wasn't going to outlaw Bitcoin (especially in the light of the heavy use by Silk Road operators in the Dark Web at the time of 2013), but the U.S. hadn't recognize Bitcoin as legal tender as in the case of Japanese government.

I have often cited in earlier posts that Chinese Bitcoin community is the largest, but this latest Japanese government official legalization of Bitcoin have changed the landscape of Bitcoin community considerably.

Here's a Bitcoin exchange volume distribution that appears in my early post dated 8 Sep 2016, which is only some 8 months ago. Look at how dominant was the Chinese bitcoin trading volume.

Bitcoin's exchange volume distribution as of 8 Sep 2016
Data as of 8 Sep 2016 (source: bitcoincharts.com)
(Click photo to enlarge)


In the above chart, JPY trading volume is so negligible that it doesn't show up in the chart at all. Look at the same chart for today (29 May 2017) below and see how big the slice that the Japanese Bitcoin community has carved out of the Bitcoin exchange volume pie. In fact, JPY's trading volume is now larger than CNY's.

Bitcoin's exchange volume distribution as of 29 May 2017
Data as of 29 May 2017 (source: bitcoincharts.com)
(Click photo to enlarge)

Look at the seismic shifts of currency distribution in the Bitcoin trading volume in just 8 months. In Sep 2016, because of Chinese capital outflow or flight, the Chinese made use of Bitcoin to do the job as i discussed in my articles Will Bitcoin Price Break Out of June's Peak. In my following post The Sudden Drop of Bitcoin Price suggests how Chinese Bitcoin community could have a large influence in Bitcoin price because of their dominance. The Chinese government crackdown on the capital flight based on Bitcoin had obviously has some impact, and the relative Chinese Bitcoin trading volume has shrunk considerably.

The latest pie chart shows a much healthier landscape for the overall global Bitcoin market because of geographical diversification. The 1st pie chart doesn't even show JPY (as the Japanese was once bitten by the Mt. Gox fiasco and shy away from Bitcoin). The 2nd pie chart shows the significant increase in the size of the slice of JPY. There's also a dramatic increase in USD and EUR. The large increase in USD could be easily attributed to the declining dollar, and simply its rise of popularity, as well as Investment vehicle like Bitcoin Investment Trust (GBTC) that based on BTC price, and is no doubt pushing more USD exchange volume into the Bitcoin market, making USD the largest trading currency by exchange volume.

I'm quite sure that the Japanese legalization has also the general boost to the profile of Bitcoin and its overall positive impact on all currencies / geography. Indian, Russian, British and even Brazilian have also jumped on board the Bitcoin bandwagon.

Bitcoin will gain greater acceptance by the mainstream business community or general public when more of major economies of the world come forth to declare Bitcoin as a legitimate alternative to fiat currency. Although i can't see countries like China, Russia and India are going to do that soon, if ever (and Russian government even banned Bitcoin before, but changed their mind later. Although citizens of these countries also want Bitcoin the most. That's the whole point, isn't it?).

Even the ransomware like WannaCry gives the Bitcoin price a boost as they make their demand to be paid in Bitcoin, just like the Dark Web's Silk Road operators. But the impact of ransomware operators on Bitcoin are far smaller today than those by the Dark Web's Silk Road operators, who made use of Bitcoin at a time when Bitcoin market cap was relatively diminutive. Also the amount of money involves in ransomware is also much smaller. While this isn't a positive publicity for Bitcoin, but this also increases the diversification of Bitcoin community.

The Chinese dominance in Bitcoin in late last year clearly illustrates how the event in China would have great influence in the Bitcoin price. As the Bitcoin geography/currency is more diversified, the effect of any 1 geographical Bitcoin market won't have as much impact on the global Bitcoin price. Of course, it also implies more cash entering the Bitcoin market from different geographical locations. Again, good for the growth and development of Bitcoin.

Like a balanced and safe investment, diversification is the key. This geographical diversification is good for stability of the Bitcoin market. While the Bitcoin is still too volatile compare to all markets outside crypto markets, but it's much less volatile (or more stable) compare to its early time, like the spike in Dec 2013 after the US Congressional Hearing that went up some 8.5 times in less than a week!  The spike in May this year, while it's impressive when compare to non-crypto markets, is relatively subdue compare to the Dec 2013 price spike. This is the kind of evolving stability that's occurring in the Bitcoin market.

Many observers - like Dennis Gartman - who thinks Bitcoin will fail because of its extreme price volatility. I take no issue with him because he makes a good point. Although he probably hasn't noticed how much price volatility has come down as i just described. Remember that Bitcoin is a payment system (without that, it's nothing), and to be a viable payment system for business, price stability is a very desirable attribute. If there's going to be an utopian world where there's no fiat currencies, and only Bitcoins for the exchange of goods and services, then price stability is even more important. Both the size of the market cap as well as currency / geography diversification would bring increasing stability to Bitcoin price.



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