The Yen-Bitcoin Carry Trade
The price of bitcoin has exploded over $1,900 ($1,944 as of this writing), and a yen-bitcoin carry trade may actually push it far higher, says leading bitcoin expert Trace Mayer.
Here’s what Trace said on our FS Insider podcast Friday:
“A major Japanese forex company is now letting people trade Bitcoin. Well, what happens there? You have a yen-bitcoin carry trade where you borrow yen at 0% interest rates and buy bitcoin. Keep in mind, yens are not limited in amount and bitcoins are and the Bank of Japan actively wants to devalue…those trillions of dollars in the yen so why would you want to hold yen when you could hold bitcoin?”
Japan Legalization a Gamechanger
According to Trace, this was all set in motion just last month when Japan officially recognized bitcoin and other cryptocurrencies as legal payment methods, which set off a flurry of buying in the cryptocurrency space. Trace again:
“This law clears up the regulatory and legal landscape for large corporations to accept bitcoin; and so, we're seeing big players like Rakuten—the eighth largest internet site—accepting bitcoin. SoftBank is making big bitcoin investments with tens of millions of dollars in different bitcoin related companies. So, I think Japan may be our real first economy that is adopting it at the large corporate level and that's exciting.”
Though noting a 10-fold increase in the number of bitcoin users since its last peak, increasing adoption by merchants, and its limited supply in the face of growing demand as all working together for higher prices, looking forward, Trace said, “I don’t think people understand just how explosive this could get.”
Many look at a linear chart like above and see an unsustainable bubble, but Trace noted that exponentially-growing companies or assets should be looked at using a log price chart. If you do this for bitcoin and figure out the slope of the curve,
“…you're looking at Bitcoin adding .3% per day to the price—that’s the chart. People don't really understand how exponential growth works but by 2020 we could be looking at $10,000-$20,000 bitcoin pretty easily. In fact, when I wrote my article back in 2015, when bitcoin was at $600, I threw out a $3,000 price target and, sure enough, we're halfway there right now. Bitcoin really requires a lot of creativity in how you look at it.”
Trace also outlined seven stages of network effects that bitcoin is following and believes we are going from the sixth, financialization, to the seventh and final: a settlement currency. At that point, it begins to replace gold and other national currencies, which, he believes, due to its unique properties, is what it will eventually accomplish.
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