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Hitoshi Taguchi, head of DMM Bitcoin, a long-established cryptocurrency exchange in Japan, describes the current situation in which spot Bitcoin ETF trading is becoming more active in the United States as "an extremely groundbreaking event."
As the head of a cryptocurrency exchange, he will provide a detailed explanation of the future outlook and important indicators.
Currently, the cryptocurrency market is booming, with Bitcoin at the forefront, but how do you think it will trend in the future?
Hitoshi Taguchi (hereinafter, Taguchi): Looking at Bitcoin's past halvings, the price tends to fall just before and just after the halving, then break its all-time high within 12 months and then rise.
Specifically, it tends to reach nearly double the current price 9 to 12 months later, so considering that it broke its all-time high of $73,000 before the halving, I think it may rise to around $155,000 by 2025. Converted to Japanese yen, that's about 24 million yen (at the time of the interview).
Bitcoin's price is expected to reach important milestones of $80,000, $100,000, $120,000, and $150,000, so I think volatility will increase as it approaches these levels.
On the other hand, from the perspective of a cryptocurrency exchange operator, the rise in cryptocurrency prices makes it even more important for the exchange to have sufficient capital and liquidity in fiat currency on hand.
Simply put, exchanges that are unable to secure sufficient capital should be aware that unforeseen circumstances may occur if the market overheats beyond their means.
Specifically, if a sales office does not have sufficient capital and liquidity in fiat currency on hand, it may not be able to respond appropriately to customer buy and sell orders.
For example, if a sales office offering a variety of cryptocurrencies receives sales of cryptocurrencies from customers that far exceed the liquidity of the fiat currency on hand, it will be necessary to promptly preserve the fiat currency in the customer's account in trust. However, if it is not possible to promptly sell the sold cryptocurrency on the market and obtain the fiat currency, it will be necessary to use the exchange's own liquidity on hand to protect the trust of customers.
We place importance on behind-the-scenes preparations, such as preparing the necessary capital and liquidity in advance to deal with the expected risk of price increases.
Currently, there is a discussion in Japan about raising the ratio in leveraged cryptocurrency trading, and the issue of capital is also a concern.
Increasing leverage will increase sales for businesses. However, I feel that there may be differences between businesses in terms of their ability to prepare separate funds for customers' unrealized gains.
We provide cryptocurrency exchange services and leveraged trading services, and we have prepared a complete response plan in advance to ensure that there are no problems with our financial structure even if Bitcoin quickly reaches $150,000.
Therefore, we would like users who trade cryptocurrencies to choose a place to trade while also considering the financial strength to maintain a perfect state even if the market overheats.
When looking at market trends, are there any factors that could have a positive effect in the future?
Taguchi: On the positive side, there is the existence of a Bitcoin spot ETF being traded in the United States.
In terms of asset classes, fiat currency is "Cash is King." In other words, it is seen as the king.
This means that cash is the strongest in times of emergency, but crypto assets are being incorporated into securities, which are a representative example of an asset class whose price fluctuates against currencies. Among them, it is very significant that Bitcoin spot ETFs are now being traded in the United States, the largest financial market.
It is groundbreaking that an opportunity has been created for investors to invest in Bitcoin without holding the actual currency.
The emergence of a spot Bitcoin ETF, which is expected to attract funds from large institutional investors in the US market as a route for investors' funds to continuously flow into the crypto asset market, may further increase the volume of capital inflows.
The presence of institutional investors is the most important factor in predicting the performance of a spot Bitcoin ETF. They are not thinking about profits from the daily rise and fall of individual stocks.
Investors are allocating various assets, such as stocks and bonds, into their portfolios, and cryptocurrencies are gradually being incorporated into them.
When observing the movements of institutional investors, the important thing is the trend in GDP. There is a view that the sum of the world's asset classes and the sum of the world's GDP basically match.
The current market value of the cryptocurrency market is about 500 trillion yen. In contrast, the sum of the world's GDP is 1.8 quadrillion yen due to the impact of monetary easing during the COVID-19 pandemic.
Based on this, the proportion of the market value of the cryptocurrency market is about 3 to 4%. Institutional investors have the idea of holding assets at an equal level when constructing a portfolio.
If a major US fund has managed assets of 2,000 trillion yen, and the asset size held as cryptocurrency ETFs is calculated to be 3 to 4% of the total, the appropriate proportion is calculated to be about 70 trillion yen.
Based on this idea, if we consider the possibility of institutional investors incorporating 3-4% of their portfolios into crypto assets, we expect that the inflow into Bitcoin spot ETFs, which is currently said to be several trillion yen, could increase by 30-40 times in the future.
As a result, we believe that the market value of crypto assets will increase further, their proportion of global GDP will increase, and a cycle will be created in which the crypto assets incorporated into portfolios are expanded and reinvested. Given this possibility, we believe that it is entirely possible that the price could rise to around $155,000 by 2025.
What are some of the factors that could have a negative effect?
Taguchi: Given the current situation, it would be interest rate trends. Given that the yield on 10-year US Treasury bonds is currently around 4-5%, coupled with the strength of the US dollar, investors will feel that there is no need to go out of their way to invest in the securities market.
On the other hand, if we consider the possibility of the US economy collapsing, there is also the idea that it is necessary to incorporate gold into one's portfolio. Although gold does not generate interest, it can help preserve assets.
In that case, Bitcoin may also function as "digital gold." However, since the scope of Bitcoin is still small, if everyone buys it at the same time, the price will skyrocket.
Therefore, institutional investors are unable to predict how much Bitcoin will contribute to asset preservation, and this is a point of concern.
However, regarding this point, if a spot Bitcoin ETF is traded in the US and it is lent and borrowed in the lending market as a security, there is a possibility that Bitcoin will have a function equivalent to interest.
In the sense that it has gained a certain established position in the global financial market, its investment value will be evaluated in the same way as other serious asset classes, so ultimately, both positive and negative aspects will be linked to investors' risk appetite.
Please tell us about the month or time that you think will be a turning point for the entire cryptocurrency market, including Bitcoin.
Taguchi: Rather than the timing, I think the big turning point will be "when a spot Ethereum ETF will be approved." And personally, I think it is unlikely to be approved soon, and in fact it would be better if it wasn't approved soon.
Why is that?
Taguchi: Right now, institutional investors are in the process of going through the PDCA cycle while devising various ways to incorporate Bitcoin into their portfolios through spot Bitcoin ETFs.
In this situation, even if a new crypto asset class product is released despite the fact that the final framework has not yet been decided, institutional investors will see no difference between Bitcoin and Ethereum and will end up building their portfolios as similar products, and above all, this could have an impact on the currently popular spot Bitcoin ETF.
Therefore, I think it would be better for institutional investors to have enough time to formulate a solid strategy. Taking this into consideration, I think it would be preferable for it to be approved at the end of this year or around April 2025. This would be more likely to lead to an increase in the price of Ethereum in the long run.
On top of that, we are currently focusing on the trends of investors who sold the Bitcoin spot ETF "GBTC" provided by Grayscale. We are currently seeing a circulation of funds, with the question of whether the sold funds will go into stocks or another spot Bitcoin ETF.
Once this settles down, I think a new investor class will emerge and the movement to fully incorporate Bitcoin into portfolios will accelerate. It is possible that some pension funds will invest over a long period of time.
It takes time for such investors to build a portfolio, and I think it will take about six months to a year.
What indicators do you think are important for beginners and other investors to look at the market?
Taguchi: One thing is that it is better to refer to the price in US dollars rather than Japanese yen. I think that analysis using charts and the like should be based on US dollars at this time.
This is because the United States is undoubtedly the country with the largest GDP in the world and the largest exposure to the investment management market.
Also, with spot Bitcoin ETFs now being traded in the United States, I think Bitcoin should essentially be seen as a "US dollar-based asset."
In fact, Bitcoin is most often traded in US dollars. There are other US dollar-based assets, such as gold and crude oil. If the US dollar is strong, the prices of these will also rise.
Another factor is the current depreciation of the yen. Four years ago, 1 dollar was about 105 yen, but now it is about 156 yen, and it is trending towards reaching 160 yen.
Bitcoin is worth over 10 million yen in Japanese yen, but if you convert this to 1 dollar = 105 yen, which was 4 years ago, it's in the 7 million yen range. In other words, it's only because the yen has weakened that it has exceeded 10 million yen, but even now, if you look at it in US dollar terms, Bitcoin's price is still at a level that is not far removed from its previous highest price. Looking back on it like this, the meaning of the word "highest price" has changed again.
The second reason is that Bitcoin's price is rationally formed by supply and demand, so we refer to technical indicators.
The current market is in a state where technical indicators are functioning. For example, the price of Bitcoin temporarily fell below 60,000 dollars and to around 59,000 dollars, but if you look at the 75-day moving average line, you can see that it was firmly supported (at the time of the interview).
In fact, there was a solid support line at 59,000 dollars, and the price quickly returned to around 61,000 dollars.
Institutional investors also naturally analyze technical indicators carefully when making investment decisions, and this has become more evident with the emergence of Bitcoin spot ETFs.
In that case, I think it would be good to become proficient in using charts, technical indicators, simple moving averages, exponential moving averages, and Ichimoku Kinko Hyo.
On the other hand, scalping, which involves repeated buying and selling in a short period of time, is not suitable for crypto assets when taxation is taken into account. Therefore, I think it would be better to incorporate crypto assets into your portfolio as a way to preserve your assets, assuming long-term holding.
If you are holding for the long term, I recommend trading crypto assets by looking at the charts and looking for points where you can buy at a discount, just like with stocks.
For example, it would be fine to make an effort to lower the overall holding price, even if it is only once a week, by buying when the price falls to an important point on the chart during the day.
Repeating this over a long period of time will also lead to a compound interest effect. I think it would be especially good for beginners to be aware of this.
Finally, please tell us if there are any points to be careful of when investing in the current crypto asset market.
Taguchi: When it comes to spot stocks, the key is to trade with a view to holding them for the medium to long term. Also, for medium to long term holding, it is most prudent to place a limit order at the price you want to buy at and buy at the sales office. If the order book at the exchange is thin, you may not be able to trade at the price you want.
However, when market volatility increases, the spread widens, so it is better to analyze the chart carefully and buy at the price you have determined each time.
Interview date: April 19, 2024
◉Hitoshi Taguchi
Born in Koshigaya City, Saitama Prefecture. Graduated from Waseda University's School of Political Science and Economics in 1994 and joined Mitsubishi Corporation. After that, he was involved in the launch and operation of various businesses at Livedoor, DeNA, EMCOM, etc., and is currently the CEO and President of "DMM Bitcoin".
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