Bitcoin Frenzy Spills Over into Small Japanese Stocks

As trading volumes in Asia support bitcoin’s bullish run, which extends for a eighth consecutive week, some investors in Japan are using small-cap stocks on the Tokyo Stock Exchange as a proxy for the digital currency.

Bitcoin’s recent rally has been linked to a phenomenal rise in small stocks on the Tokyo Stock Exchange, as Bloomberg reported June 5, where untrusting traders unsure of the cryptocurrency prefer to use bitcoin- and blockchain-related companies to speculate on the value of this new technology. BTCMANAGER reported in July 2016 that such a strategy could work well as an alternative to investing directly into crypto-assets themselves. Now as bitcoin adoption gains track amongst businesses in Japan, it is clear that investors are executing such a strategy.

One of the small-cap stocks experiencing such a spill over is Remixpoint Co., which has risen in tandem with the price of bitcoin since its partner Peaches Airlines announced they would integrate the cryptocurrency. The chart below shows the daily price action for their stock, illustrating a dramatic rise since May 22.

Similarly, bitcoin-induced volatility on the Tokyo Stock Exchange is also occuring via Infoteria Corp., which has seen a massive rise in both value and volume since May 25. The chart below shows the daily action, with an almost identical move to Remixpoint’s stock price. Infoteria is testing ways to allow shareholders to vote using blockchain technology. In July 2016, Infoteria announced the use of its private blockchain to conduct micropayments in Myanmar.

Thirdly, financial services firm Fisco Ltd. Opened a bitcoin exchange in 2016 and the buoyancy in cryptocurrency has also boosted their stock price. The daily chart below shows an almost 25 percent gain since late May.

With many investors new to cryptocurrency, some are using their brokerage accounts as a shortcut into the rush for ‘digital gold.’

Naoki Murakami, a reputable Japanese day trader and frequent speaker at investor conferences, told Bloomberg:

“From about a month ago when all these virtual currencies started spiking like crazy, we began seeing the so-called ‘stocks of the virtual currency bubble.’ Not everyone is sure they can trust bitcoin exchanges. And some don’t have accounts there. That’s why they’re using the stock market to speculate.”

Murakami states it is just a “frenzy,” with the moves seen pure speculation and affected companies are trading at an astronomical multiple of their earnings, such as Remixpoint, which has a market value of 31.3 billion yen ($283 million) compared to its earnings of 60.89 million yen ($551,602).

Follow the legalization of digital currencies as a form of payment in Japan, many businesses have sought to collaborate with bitcoin startups. For instance, e-commerce giant GMO, a leader in the internet and forex markets in Japan, announced their entrance into the bitcoin wallet market in January 2017 and have launched their cryptocurrency exchange, Z.com Coin, on May 31.

As digital currency makes its mark on the world, the growing sector of the economy is starting to have feedback effects on the traditional economy, in ways that some have anticipated, such as the Bank of England. In Q3 2014, the Bank of England warned that if broad adoption were to take place, it could deepen the impact of price volatility on the wider economy.