Why Asia is driving the cryptocurrency fever

South Korea has been particularly prone to the bitcoin fever: it accounts for about 12 per cent of trading volumes globally

On Wednesday evening above a snowboard shop near Tokyo’s financial district, a meeting room is quickly filling with cryptocurrency traders in the making. Some are suited salarymen just out of the office, one is a grungy student, several are housewives from the suburbs.

All of them are bit-curious, here for one of the dozens of bitcoin-themed educational seminars held across Japan every week to growing audiences of the sorely tempted, the sceptical and the unashamedly baffled.

Elsewhere in Asia, similar booms are establishing the region’s dominance of the cryptocurrency theme, whipping up retail investor aspirations and, say some analysts, producing measurable effects on mainstream asset markets.

Official attempts to curb enthusiasm — such as the Chinese government’s September ban on centralised cryptocurrency exchanges — have hardened the resilience. Chinese devotees, according to some reports, have taken to trading bitcoin on peer-to-peer networks, or taken their business offshore.

Others note that Asian cryptocurrency trading has proved remarkably adaptable, especially to the wide range of prices available across the region. Aurélien Menant, chief executive of Gatecoin, a Hong Kong-based bitcoin and ethereum exchange, said: “The price in Japan and South Korea is higher due to local demand, so people from those countries are coming here to get a better price.”

South Korea has been particularly prone to the fever: it accounts for about 12 per cent of trading volumes globally, according to analysts at Citi, who say that this figure is rapidly rising. It is still dwarfed by the participation of Japan, but its economy is four times larger than that of South Korea, and bigger in terms of financial investments.

“Bitcoin is now so popular that it has potentially started to drain retail liquidity away from the largest stocks,” the Citi analysts noted on South Korea’s bitcoin trading.

The stock price of Samsung has moved inversely to that of bitcoin recently, raising the possibility that the country’s retail investors are taking money out of typical household names and pumping it into bitcoin.

Japanese retail investors help account for the country’s 54 per cent share of the global market in foreign exchange margin trading, after years of aggressive campaigns that the bitcoin platforms now seek to match.

An analysis by Deutsche Bank this month asserts that bitcoin’s bubbly rise is being driven by the highly leveraged punts of “Mr Watanabe” — the same 30-40-year-old men who were previously hooked on currency trading with borrowed money.

Advertisements for rival bitcoin trading sites compete for primetime TV slots, for the best positions in commuter trains and for some of the largest billboards in Tokyo. BitFlyer, which handles the largest volume of yen-denominated bitcoin trading, has begun driving a large truck through the streets of the capital to ensure that its brand name — and catchy theme song — cannot possibly be missed.

There are a few notes of caution. A day before the Wednesday seminar, in this case hosted by the newly formed Crypto Currency Coin Academy, Taro Aso, Japan’s finance minister, declared that bitcoin “has not yet been proven credible enough to become a currency”. On Thursday, Haruhiko Kuroda, the governor of the Bank of Japan, drily noted that “it is true that the price is rising abnormally”.

But the natural conservatism of the Japanese authorities, some argue, has played a significant role in promoting bitcoin’s popularity. In April this year, legislation came into effect that defines bitcoin and other virtual currencies as form of payment to be treated as an asset (rather than a currency). In doing this, Japan became the first major economy to bestow that legitimacy on it.

Having also been embarrassed by the implosion of Mt Gox — at the time the world’s biggest bitcoin trading platform — in its jurisdiction, Japan has created a roster of 11 certified exchanges over which the Financial Services Agency has supervision. A widely publicised picture of the 11 exchange bosses, posing with the Tokyo Metropolitan Police’s head of community safety, say seminar attendees, was a factor in making the whole business seem more mainstream.

In South Korea, though, the sense of a dangerous bubble forming around cryptocurrency is stronger. Lee Nak-yon, prime minister of South Korea, warned last month that young people were making risky bets on the asset to make a quick profit, and that digital currencies were used for illegal activities, such as drug dealing. The country recently banned initial coin offerings, which allow start-ups to raise funds by selling digital tokens, or coins, to investors. Citi analysts suggested that: “If the market doesn’t cool, it is likely there will be more regulations in the pipeline.”

However, financial industry veterans suspect that a heavy-handed move by Korean regulators to clamp down on speculation could hit the price of bitcoin and have implications for other markets. Korea has in the past shown that it is willing to stamp out superfluous speculation by retail investors. In 2011, it applied stricter margin requirements to equity derivatives trading, as well as larger minimum trading units, to restrict retail speculators.

One banker said: “South Koreans are heavily invested in bitcoin. So, if the price plunges, it could impact the housing/equity market in South Korea.”

He added that because many Korean households have high loan-to-value mortgages, and because of their investment into bitcoin, any plunge in the cryptocurrency’s price will put pressure on servicing the debt.

Others are less concerned. Tim Swanson, director of research at US-based Post Oak Labs, a fintech advisory boutique, said the potential repercussions would “likely be muted relative to other bubbles bursting” because there was “a lack of leverage and a lack of deep ties into the traditional financial system”.

Back in Tokyo, the bitcoin seminar ends and, as one of the male participants points out, the bitcoin price has risen by about ¥10,000 during the course of the lecture.

“It’s easy to think what I could have made if I bought that with some leverage,” he says, “but it’s not like the yen where it moves because of news. I still don’t know why bitcoin prices move.”