Yesterday we published an article that Japanese Economy is expected to benefit out of the growth in Bitcoin. While continuing our research we found out that the growth in Bitcoin could add around 0.3% to the Japanese GDP.
Kazuki Miyamoto and Yoshiyuki Suimon, two Nomura analysts have recently revealed that the meteoric rise in the value of Bitcoin could contribute by 0.3% to the GDP growth figure of Japan. A recent note released by them pointed out that the “wealth effect” of bitcoin holders in Japan is most likely to hike up the rate of consumer spending which in turn shall have a positive effect on the nation’s GDP figure. The most interesting feature about the note released is that economists and analysts have taken the assumption that bitcoin is devoid of much connectivity with other financial institutions and also quite smaller in terms of market capitalisation for having any significant effect on the real-world economy. Bitcoin is accepted as a medium of payment by only three out of the top 500 online retailers.
Also Read: Top Global Companies Accepting Bitcoins
Traditional financial institutions have embarked on the journey towards crypto enlightenment very recently by introducing its clients with crypto world. CME Group and CBOE have already introduced bitcoin futures and Goldman Sachs is soon to open a crypto trading desk to benefit most out of this growing phenomenon. CBOE has even also filed 6 Bitcoin ETF’s Applicationto US Regulator Securities and Exchange Commission.
Users of crypto exchanges such as bitFlyer and Bitfinex have starting making leveraged bets on the value of bitcoin. Amidst criticism of Bitcoin being extremely volatile in nature, there’s no denying the fact that the holders of the same at the beginning of 2017 have surely come off richer as the value of their investment pumped up rhetorically. The analysts said that, “the scale of this increase in assets can hardly be ignored.”
The “wealth effect” in economics refer to a measurable hike in economic activity which is triggered by rise in the price of assets by making consumers feel richer which is evident when they boost up spending.
This became all the more pronounced during the acute credit crisis caused in 2008 making homeowners feel wealthier as property prices kept on soaring to record heights. As their house properties started climbing up the value ladder, those consumers increased their propensity to purchase with the spare cash they had in hands juicing the whole economy. Bitcoin is highly popular in the land of rising sun with 3.7 million bitcoins being owned by 1 million Japanese nationals as revealed by Nomura estimates. Miyamoto and Suimon have calculated that the wealth effect of such holdings could pave the path for an extra consumption worth $851 million. Nomura announced that the market cap of bitcoin which was traded in yen had hiked up to $4.52 billion within Christmas Day thus helping the Japanese holders showcase an annual rise in asset value by $3 billion.
“Generally speaking, rises in asset values often result in a rise in consumer spending too, known as the wealth effect. In this report, we estimate the wealth effect from unrealized gains on Bitcoin trading by Japanese investors since the start of FY17, and estimate a potential boost to consumer spending of ¥23.2-96.0bn. Moreover, the fact that the rise in Bitcoin prices was concentrated in 2017 Q4 could result in the wealth effect materializing in 2018 Q1, and if that is the case, we estimate a potential boost to real GDP growth on an annualized q-q basis of up to about 0.3ppt (¥96.0bn / ¥130trn × 4),” read out the Nomura announcement.
The basis of their computation is derived from an array of historical researches conducted on the wealth effect of asset rises on the Japanese economy. Although the analysts did not reveal but the data sheet clearly pronounced that rising Bitcoin price could also become detrimental to the country’s economy if volatility does not cease in days to come and the price bubble ultimately bursts.
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