Bitcoin Fundamentals: Look to Japan, Germany for Macro Drivers

Concerns surrounding global monetary policy have been a major driver of bitcoin prices, as has been made abundantly clear over the past 30 days. As worries of inflationary quantitative easing and capital restrictions placed on individuals by their governments become increasingly prevalent, global citizens are looking to store wealth in a number of places outside of their own currency.

Historically, gold and other precious metals have served as the de facto alternative asset classes to protect against inflation, but the difficulty of transporting gold makes it both costly to trade in it’s true form and virtually impossible to use for circumventing governmental capital controls designed to prevent currency flight from troubled nations at the potentially devastating expense of it’s citizens.

Japanese Hyperinflation Fears

Japan is one country to watch particularly closely when it comes to relative currency valuations. The Asian nation recently doubled the speed of it’s monetary easing, with the Bank of Japan planning to purchase some 70% of all new bond issuance. The Japanese government has been actively and vocally taking actions to encourage inflation to help drive exports and monetary velocity within their borders, with this latest move being one of most significant to date.

With the Bank of Japan incentivized by direct impact on stock market performance, it’s no surprise that they’ve been as vocal as they have about their intention to push yen inflation. Despite the perceived benefits over the past few years, there’s reason to believe the BOJ is playing a dangerous game.

“Things may look rosy for now as stocks rise, but should we see hyper-inflation, [Japanese Government Bonds] will see a huge selloff, leading to a stock market crash,” said Takeshi Fujimaki, George Soros’ former advisor, as reported by Bloomberg. He later continued, “There will be tremendous side effects from monetary stimulus. QE doesn’t work and has no exit.”

With Japan’s financial markets dependent on infinite easing and it’s currency on the brink of hyperinflation, where will Japanese citizens turn to store their wealth? Given what we’ve seen recently, we’re looking to macro news out of Japan as a strong fundamental driver of BTC demand.

Further European Wealth Taxes Risk Capital Flight

Two of Angela Merkel’s five closest advisors recently called for additional taxes on existing wealth of southern Europeans, according to The Telegraph. Most of our readers will recall the recent haircut on Cypriot deposits, but keep in mind the European Commission agreed to a $10 billion bailout of the countries troubled banks. Ever-increasing tensions from the German populace about funding the rest of the EU’s financial tumult is beginning to have serious effects on the financially stability of the region.

“The rich must give up part of their wealth over the next ten years,” said Prof Bofinger, one of Merkel’s advisors, when speaking about the wealthy citizens of bailout-recipient nations. Noting the average wealth in many of the bailed out countries actually surpasses the average per capita wealth of German citizens, another of Merkel’s five closest ministers stated, “this shows that Germany has been right to take a tough line of euro rescue loans.”

As demonstrated in the chart at the beginning of this article, concerns around depositor haircuts and capital controls have proven to lead to increased demand for Bitcoin as a preservation of wealth. Expect further developments on this front to lead to a stronger bid for the world’s favorite digital currency.

Chinese Capital Controls and Digital Adoption

China will continue to be a driver of Bitcoin adoption, but we expect the world’s second largest economy to see sustained growth of adoption over a continuous period, rather than a specific news-driven event to spur a Bitcoin buying rush.

The policy shifts that have spurred recent demand for Bitcoin have, in many ways, been a longstanding fact of life in China. The notion of private asset ownership has garnered continued opposition from the Chinese populace, while capital controls remain among the strictest in developed economies.

On top of that, China’s technological capabilities are growing at incredible speeds, with 10% growth in citizens with internet access in 2012 alone, climbing to 550 million, or 42.1% of the country’s population.