[The Return of Bitcoin] Bitcoin Craze, Will It Be Different This Time?

Abundant Liquidity Resembles 3 Years Ago
Supply and Demand Actors Are Institutions, Not Individuals
Payment Methods Highlighted Over Simple Assets
Interest in Whether It Will Become a Leading Asset
Concerns Persist Amid High Volatility

[Asia Economy Reporter Song Hwajeong] Bitcoin continues its unstoppable upward trend. After surpassing $50,000 per coin for the first time in history, its market capitalization also exceeded $1 trillion, surpassing Tesla's market cap. As the Bitcoin frenzy similar to that of 2017-2018 resurges, attention is focused on whether cryptocurrencies will establish themselves as a primary asset this time or if it will end as just another craze.

According to cryptocurrency market site CoinMarketCap as of 9:30 AM on the 22nd, Bitcoin recorded $56,755.9, up 1.61% from the previous day. Its market cap reached $1.727 trillion. Earlier, on the 20th, Bitcoin's market cap surpassed $1 trillion, exceeding Tesla's $700 billion valuation. Bitcoin's price has surged 350% over the past six months.

Abundant Liquidity... Recreating the Frenzy from 3 Years Ago

This rapid rise in Bitcoin recalls the Bitcoin frenzy from late 2017 to early 2018. Bitcoin, which was under $900 at the end of 2016, showed a steep rise, surpassing $19,000 in December 2017. However, with regulatory measures from various governments, it plummeted, falling to around $6,800 in early April 2018 and closing at about $3,860 by the end of that year.

The similarity between the recent Bitcoin surge and that of early 2017-2018 is abundant liquidity. The KOSPI also recorded an all-time high in January 2018, rising sharply from 2017 through early 2018, and the abundant liquidity flowed into cryptocurrencies, contributing to their rapid rise. This year, KOSPI and KOSDAQ showed strength by surpassing 3,000 and 1,000 points respectively. Economist Lee Jong-woo said, "The similarity with three years ago is the increase in liquidity," adding, "The increased liquidity seems to have spread to stocks, real estate, and cryptocurrencies. The surge in liquidity due to COVID-19 has created strong upward momentum."

Shift in Market Participants from ‘Individuals’ to ‘Institutions’

A difference from the past is the main drivers of Bitcoin price increases. Previously, individuals led the Bitcoin frenzy, but this time institutions are at the center. Global companies such as Tesla, Mastercard, Morgan Stanley, and BlackRock have invested in or shown interest in Bitcoin, fueling the price rise. Tesla recently disclosed in a report filed with the U.S. Securities and Exchange Commission (SEC) that it purchased $1.5 billion worth of Bitcoin. It also announced plans to allow Bitcoin as a payment method for electric vehicles in the future. BNY Mellon Bank in New York announced it would handle Bitcoin, and Mastercard and Visa also decided to introduce cryptocurrency payment services. BlackRock, the largest asset management firm in the U.S., has also joined Bitcoin investment. Rick Rieder, BlackRock’s Global Chief Investment Officer (CIO) for bonds, recently said, "We have started to dip our toes into Bitcoin."

Han Dae-hoon, a researcher at SK Securities, said, "Cryptocurrency has now truly entered the era of institutional investors," adding, "Tech companies opened the door, and leading financial firms are entering the market to keep up." He further noted, "Canada was the first country in the world to approve a Bitcoin exchange-traded fund (ETF), and with Apple Pay allowing Bitcoin payments, there are expectations that Apple will also enter the market. Institutional investors' market entry is expected to accelerate."

Highlighting Bitcoin as an International Trade Payment Method

Another difference is Bitcoin’s emergence not just as an asset but as a payment method. According to the Korea Institute of Finance, in countries like Nigeria in Africa, where access to the U.S. dollar is severely restricted, and Argentina in Latin America, where the local currency shows high volatility, small and medium-sized enterprises are using Bitcoin as a payment currency for international trade. With simple payment service companies such as PayPal and its subsidiary Venmo announcing plans to enter cryptocurrency trading and payment services, Bitcoin’s status as both a store of value and a payment method is being emphasized.

Similar movements are appearing domestically as well. Danal Fintech, a subsidiary of electronic payment gateway (PG) company Danal, plans to launch a service allowing Bitcoin payments at over 60,000 online and offline merchants nationwide through the ‘Paycoin’ app. Paycoin is a blockchain-based cryptocurrency payment platform introduced by Danal Fintech in 2019, enabling users to convert Bitcoin into Paycoin within the app and use it at affiliated convenience stores and other merchants.

Despite these differences, concerns about cryptocurrencies remain due to high volatility. Economist Lee said, "Although things have changed from the past, the volatility is still too high to make it easy to use as a payment method," adding, "Because prices fluctuate sharply within a day, sellers and buyers inevitably experience mixed fortunes, which could lead to disputes."