Japan, South Korea drive global bitcoin prices as retail investor pile in

The average person can easily purchase and trade bitcoins through an online trading platform such as Coinbase using their normal debit or credit card, meaning real money can flood into the currency very quickly. (Reuters)
Updated 26 May 2017
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Japan, South Korea drive global bitcoin prices as retail investor pile in

HONG KONG: Japanese and South Korean buying helped drive the price of bitcoin to an all-time high this week, with the digital currency more than doubling its value since the start of the year, analysts and market practitioners said on Friday.
Frenzied buying as the price peaked at $2,760.10 on Thursday caused website outages on Coinbase, the global bitcoin company that allows consumers to buy and sell bitcoins. The price has since fallen back to $2,632.74.
In Japan and South Korea, among the largest markets for bitcoin globally, bitcoin traded at a premium of more than $300 higher above the global average, according to CryptoCompare.com.
The rally appeared to have been driven by new buying from smaller retail investors, suggesting bitcoins are increasingly viewed among the general investing public as an alternative asset class much like gold, analysts said.
“There were some people that made a big profit in a short time and it got more media attention. Then even people that had not 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.
Bobby Lee, CEO of BTCC in Shanghai, one of the world’s largest bitcoin exchanges, said the global macroeconomic environment, which has seen sustained low interest rates, was conducive to investments in alternative assets like gold, silver and bitcoin.
Investor sentiment has been boosted by recent regulatory developments in the region, with governments in both Japan and Korea introducing frameworks paving the way for bitcoin to be used on a par with national currencies.
Last month, the Japanese government recognized bitcoin as legal tender, in a key development that has spawned a number of new bitcoin exchanges in the country, making it more attractive to traditional retail investors.
“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.
Price spikes are also being driven by the scarcity that is built into the global bitcoin market.
Bitcoins are created through a computing process known as “mining” but 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.
The average person can easily purchase and trade bitcoins through an online trading platform such as Coinbase using their normal debit or credit card, meaning real money can flood into the currency very quickly.
“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 realizing that there will only ever be 21 million bitcoins and that this might be their last chance to get into the market — and that is what is leading to these huge price spikes.”


Turkish firms, government face $3.8bn bond crunch in October

Updated 19 min 3 sec ago
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Turkish firms, government face $3.8bn bond crunch in October

LONDON: Turkey and its firms face repayments of nearly $3.8 billion on foreign currency bonds in October as the country struggles with a plunging lira that has lost more than a third of its value since the start of the year.
Emerging market (EM) investors have been worried about Turkey’s external debt burden and the ability of its firms and banks to repay after a boom in hard currency issuance to help finance a rapidly growing economy.
For companies, the cost of servicing foreign debt has risen by a quarter in lira terms in the past two months alone.
“Turkey’s external financing requirements are large,” Jason Daw at Societe General wrote in a note to clients. “It has the highest FX-denominated debt in EM and short-term external debt of $180 billion and total external debt of $460 billion.”
Calculations by Societe General show that Turkish firms will face $1.8 billion of hard-currency denominated bonds maturing by the year-end while $1.25 billion of government bonds will come due. Additionally, a total of $2.3 billion in interest must be paid.
The heaviest month for repayments is October, when $3 billion in principal and $762 million interest are due.
“Principal and interest payments should be closely watched to year end – it is 25 percent more costly for the corporate sector to repay their obligations compared to June given FX depreciation,” Daw wrote.
One mitigating factor may be that much of the short-term external debt was in instruments such as bank loans and trade credits, which could be smoother to restructure or roll over than attempting to do so on bond markets, Daw added.
Data from LPC showed that about $7 billion of loans are due to mature until the end of the year, with more than 90 percent of those being bank loans.
A number of lenders such as Akbank, Turk Ekonomi Bankasi and Turk Eximbank are in the market attempting to refinance loans. However, international banks are unlikely to make any decisions before ratings agencies react, with many predicting the lending boom would grind to a sudden halt.
“Foreign financiers, whether they exist as banks or bond investors, are re-assessing the outlook and related repayment prospects,” said Jurgen Odenius, economic counsellor at PGIM Fixed Income.
“Western European banks from Spain and France are particularly exposed, with over half of the debt owed to them.”
Shares in some of Europe’s major banks have been hammered over the last week as markets fret over their exposure to Turkey.
Odenius also points to the fallout from Turkey’s financial system and the corporate sector being effectively short dollars, calculating that net foreign exchange liabilities (NFL) of the central bank and commercial banks combined amounted to $27 billion at the end of June.
“While that is undoubtedly a manageable figure, these liabilities only pertain to foreign lenders,” Odenius wrote in a note to clients. “Including the $147 billion in dollar deposits by resident households and firms, the ‘adjusted’ NFL spirals up to nearly $175 billion — an undoubtedly less manageable figure.”
With President Tayyip Erdogan’s administration shunning orthodox monetary policy and highly reluctant to raise interest rates to contain inflation at over 15 percent, markets are also closely watching how the Turkish state goes about refinancing its debts.
Erdogan’s government has adamantly rejected speculation that it may have to seek support from the International Monetary Fund (IMF). Qatar has pledged about $15 billion but details have been scant.
“Rather than sticking with the approach taken by numerous other countries – including Argentina earlier this year – by raising interest rates and seeking some form of IMF support, Turkey has shunned both in a very public manner,” wrote Mohamed El-Erian, chief economic adviser at Allianz.
“Unless it changes course, the government risks much wider damage – and not just in Turkey.”