No, Fed’s Comment on Blockchain Didn’t Lead to Bitcoin Price Surge

May 17, 2017 17:38 UTC

On May 9, Evelyn Chen of CNBC reported that bitcoin price surged to a new all-time high due to the announcement of the Federal Reserve Bank president Neel Kashkari. However, quite obviously and evidently, Kashkari’s statement on blockchain did not lead to a bitcoin price surge and have any sort of influence on the market.

The global bitcoin exchange market is far bigger than most imagine. If the bitcoin-to-altcoin pair is included, the trading volume of the global bitcoin exchange market is $811 million, with Japan leading the market as the largest bitcoin exchange market with nearly 33 percent of the market share and a $120.5 million daily trading volume.

Over the past few years, banks, financial institutions and the so-called blockchain consortia have allocated the majority of their resources and capital in detaching the term blockchain from bitcoin. Most notably, before the R3 consortia distanced itself from blockchain development, the organization pushed the term distributed ledger technology, an identical technology to the blockchain, with the sole intent of convincing the global finance market that blockchain is different from bitcoin.

In a way, the development of blockchain is the finance industry’s counter project to bitcoin. By replicating a part of the Bitcoin protocol, banks and financial institutions aim to create a decentralized technology that could be used to reduce their operating costs and optimize existing infrastructures.

Considering that blockchain and bitcoin are two different technologies, mostly because of the efforts of the finance industry to independently develop bitcoin-inspired banking technology, the Federal Reserve Bank’s announcement that blockchain has more potential than bitcoin couldn’t in any possible way affect bitcoin price positively. If anything, it would have led to a decline in bitcoin price because an established financial institution and powerhouse within the global finance ecosystem  boldly stated that bitcoin’s competing technology has more potential.

In his statement Kashkari said:

“I think sentiment has shifted in the markets, in the Fed. I would say I think conventional wisdom now is that blockchain and the underlying technology is probably more interesting and has more potential than maybe bitcoin does by itself.”

The actual factors that led bitcoin price to surg on May 9 are the explosive growth of the Japanese bitcoin industry and the rise in the demand toward bitcoin from institutional investors. More importantly, Japanese bitcoin exchanges clarified that their trading platforms don’t portray inflated volumes because fees exist for average traders. In an interview, Yuzo Kano, the CEO of Bitflyer, the world’s largest bitcoin exchange, stated:

“We charge trading fees for BTC and ‘swap point’ for FX. So it’s a different situation from China before this January. We are seeing funds inflowing not only to BTC but also all crypto markets.”

Mike Kayamori, the CEO of QUOINE, another major Japanese bitcoin exchange which controls around 10 percent of the Japanese bitcoin exchange market share, explained:

“At QUOINE, we are charging fees on all trades other than spot trading of BTC/JPY. Every other currency pair, as well as margin trading, there is a fee. And our spreads are quite large, hence our volume is actually lower in April/May than it was March.”

To this date, bitcoin is being traded in Japan for a high premium of 7 percent over other major bitcoin exchange markets such as the US and Europe, demonstrating the continuous rise in demand toward bitcoin.

Featured image from Shutterstock.

Last modified: May 17, 2017 17:52 UTC

@iamjosephyoung

Hong Kong-Based Finance Analyst. Contributing regularly to CCN and Hacked. Providing unique insights into the fintech space since 2012.