BTC/JPY Pair Holds Untapped Opportunities for Investors as Bitcoin Dominance Picks Up Pace

Updated on

Japan declared Bitcoin an official currency in 2017, and since then, the cryptocurrency market in the country has taken off like wildfire. U.S. investors interested in forex trading have yet another currency pair available to them. But considering how new the field is, there is still plenty of opportunity for investors and entrepreneurs in this space.

Get The Full Warren Buffett Series in PDF

Get the entire 10-part series on Warren Buffett in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q1 2021 hedge fund letters, conferences and more

An untapped market for Bitcoin

Japan is an untapped market for Bitcoin, as data from Coinhills shows that the yen is the third most traded national currency for Bitcoin after only the U.S. dollar and the Korean won.

However, it's a distant third as the U.S. dollar makes up about 80% of all Bitcoin trades, while the won is only about 7% of trades. The yen is in third place at about 6% of trades, demonstrating the opportunities for those who want to take advantage of the yen/ Bitcoin currency pair.

The Bitcoin price dropped by about 8% toward the end of last week when Bank of Japan Governor Haruhiko Kuroda said most trading in Bitcoin is "speculative" and that volatility is "extraordinarily high." He added that the cryptocurrency is "barely used as a means of settlement."

Despite his remarks, the Bitcoin price came roaring back, and volatility continues. However, where there is volatility, there is an opportunity to use arbitrage to turn a profit.

Japan leads the way in Bitcoin investing

Japan is home to a massive base of cryptocurrency users and investors. Historically, the nation has been the second or third-largest economy in the world for Bitcoin. A few years ago, the yen accounted for 11% of the global trading volume for Bitcoin, so it has fallen behind the won as the years have gone on.

Japan also leads the world in cryptocurrency legalization, regulation, and acceptance. Major crypto exchanges in Japan are registered as financial services institutions, and many merchants accept Bitcoin as a method of payment in the country.

Despite Japan's acceptance of Bitcoin, a recent survey found that 78% of respondents to its survey in Japan had a negative perception of cryptocurrency. This negative sentiment means investing in Bitcoin using the yen because the Japanese aren't inclined to do it.

Arbitrage opportunities in Bitcoin

Bitcoin and the yen tend to be two of the most volatile assets available, so there are arbitrage opportunities when trading both of them. The simplest way to benefit from Bitcoin arbitrage is to buy some of the cryptocurrency on the exchange where it is the cheapest and then sell it on the exchange where it is the most expensive. Bitcoin trades at different prices on different exchanges, which is why such arbitrage is possible.

When you add the yen into the mix, you get even more opportunities. Forex trading often involves very short-minded trades, sometimes lasting only mere minutes. Arbitrage involves looking for gaps between prices where you can buy Bitcoin or yen from one broker or exchange and then sell it for more money on another.

There are arbitrage opportunities in trading between multiple currencies and Bitcoin. That means you may find it profitable to buy Bitcoin using yen and then sell it for U.S. dollars, or vice versa. When you have multiple currencies involved, there are many opportunities to turn a profit using arbitrage, but you have to know where to look.

Just today, during the Bitcoin 2021 conference in Miami, bitFlyer USA opened the BTC/JPY pair to U.S. investors, increasing the flow of capital into the Japanese market and reigniting the discussion around Bitcoin's growth trajectory in Japan.

"By opening up access to BTC/JPY markets for U.S. residents, we enable a tighter connection between the two cryptocurrency markets. Bitcoin can now act as the glue between the two local financial systems — an exciting step on the path to wider adoption.", says Joel Edgerton, on the heels of the news.

Finding opportunities

It would help if you had experience trading forex because you could utilize that experience in trading between Bitcoin and the yen or other fiat currencies. However, if you don't have forex experience, you can still look for opportunities to profit on your Bitcoin trades.

The values of Bitcoin and fiat currencies go up and down against each other, so all you have to do is look for a currency trade where you get more Bitcoin for less fiat currency. Then you sell your Bitcoin in another currency to get more of that currency.

You must keep in mind that if you're getting more of one currency for Bitcoin, it might mean that the currency is being devalued. However, investors can solve the F.X. problem by holding the Bitcoin or other currency for a bit until an attractive trade value is reached.