Japan: Bitcoin wealth effect could lead to ¥96bn of consumption - Nomura

Analysts at Nomura note that price movements for the cryptocurrency Bitcoin have been attracting attention as the price rose exponentially in the second half of 2017, hitting a record high of $19,497 on 16 December.

Key Quotes

“This is a remarkable increase over the 1 January 2017 price of $998. Although the price dropped sharply to less than $12,000 after that for a time, it then rebounded to approach $16,100 as of 26 December. Looking at the Bitcoin market trading volume by currency shows that around 40% of trades are on a yen basis. This is bigger than the US dollar share, and suggests that individual investors in Japan are a major presence on the market.”

“Wealth effect from rapid rise in Bitcoin prices

• As of 25 December, the market cap of Bitcoin traded in yen had increased to roughly ¥5.1trn on an Oct-Dec average basis. Assuming that much of this ¥5.1trn belongs to Japanese investors, this represents a substantial increase in asset value.
• Generally speaking, rises in asset values often result in a rise in consumer spending too, known as the wealth effect. In this report, we estimate the wealth effect from unrealized gains on Bitcoin trading by Japanese investors since the start of FY17, and estimate a potential boost to consumer spending of ¥23.2-96.0bn (see the main text for our calculation method). Moreover, the fact that the rise in Bitcoin prices was concentrated in 2017 Q4 could result in the wealth effect materializing in 2018 Q1, and if that is the case, we estimate a potential boost to real GDP growth on an annualized q-q basis of up to about 0.3ppt (¥96.0bn / ¥130trn × 4).
• To what extent major Bitcoin owners who have increased their assets through the end of the year will bolster consumer spending through the beginning of year remains to be seen, but we should keep in mind the possibility that spending will exceed expectations as a result of this factor.”