Faced with the large volatility of Bitcoin prices, how to calm down is the key.
At the beginning of the new year in 2021, Bitcoin ushered in a jaw-dropping rise like a dead horse, attracting the attention of global capital markets. Since New Year’s Day, the price of Bitcoin has reached highs of US$34,000 and US$40,000, pushing the total market value of the cryptocurrency market to exceed US$1 trillion, and the total market value of Bitcoin is also higher than that of the A-share “market value king” Moutai. Two trillion yuan. Therefore, overseas investment institutions have completely different views on the current trend of Bitcoin. Some believe that the weakening of the US dollar, the risk of increased inflation, and the entry of institutions have pushed up prices, and the rise is expected; but there are also views that this round of rapid rise has accumulated a huge risk, and the future market will eliminate bubbles. demand.
Looking at Bitcoin’s performance in 2020, except for the cliff-like fall when the new crown pneumonia outbreak began in late February, it has experienced five rounds of rapid rise, especially from the low of 3850 US dollars on March 12 last year. Since the rebound, the market has been advancing all the way. According to agency statistics, the return on investment of Bitcoin in 2020 is several times that of the Dow Jones Index and gold. In fact, as early as 2020, investors analyzed that the increased geopolitical turbulence may stimulate the demand for cryptocurrencies. Bitcoin may become a safe-haven tool similar to gold. Sure enough, it reached a high of $10,670 on February 13. It confirms the 2017 prediction of JP Morgan Chase CEO Jamie Dimon that “even if it is moderately squeezed out as an alternative to gold for a long period of time, the price of Bitcoin will still rise”.
Nowadays, traditional financial “predators” such as JP Morgan Chase, Morgan Stanley, Tudor Investments, and Blackstone have already begun to get together. PayPal, the multinational payment company founded by the world’s richest man Musk, also announced that it will allow its 346 million customers to hold Bitcoin and other cryptocurrencies and allow them to use digital assets to shop in 26 million stores on its network. A report by the foreign exchange and cryptocurrency analysis company “Quantum Economics” at the end of October 2020 believes that PayPal’s move “is likely to become a watershed when Bitcoin enters the mainstream.”
Bitcoin, which used to be the “cabbage price”, has increased by more than 10 million times in the past 10 years. So what factors have contributed to this wave of rapid appreciation? William, the chief researcher of OKEx Research, believes that “Bitcoin’s recent rapid rise may be different from what everyone generally believes is speculation or speculation. Although speculation and speculation exist, they are not the main reason. The main reason is high net worth and institutional investors. For example, since the second half of last year, institutions such as the American insurance giant MassMutual Life Insurance Company and the business analysis company MicroStrategy have bought Bitcoin one after another, while online payment giant PayPal and Singapore’s largest commercial bank DBS Bank have also announced Cryptocurrency payment services will be launched”.
According to data from Bitcoin Treasuries, currently more than 6.9 billion U.S. dollars of Bitcoin are held by listed companies, which may be the direct reason for the prosperity of the Bitcoin market. Liang Zhonghua, chief macro analyst at Zhongtai Securities, also said that Bitcoin’s recent rapid appreciation was objectively caused by the large-scale release of liquidity in order to stimulate the economy and global monetary policy after the outbreak. The environment keeps the global market in a monetary easing cycle, and the substantial increase in liquidity of funds and the simultaneous increase in demand for hedging have produced this result. “In fact, it is not only Bitcoin, but also the U.S. stock market and the Chinese stock market. Various financial experiments and product innovations around Bitcoin will continue to increase in 2021. As the cornerstone of blockchain financial products, Bitcoin is an exclusive The track will attract capital and continue to lay out, and the overall trend will continue to show a strong upward trend.”
However, for most Chinese people, Bitcoin is an invisible and intangible digital coin, and daily transactions have nothing to do with it. So where is its value? Liang Zhonghua introduced that the rise of Bitcoin is essentially the same as the rise of Moutai, housing prices, and gold.
He drew an analogy. When the seemingly worthless banknotes have value behind them, people are willing to hold banknotes; when banknotes are printed indefinitely and the value behind them shrinks significantly, people will look for new products. The value-preserving function of alternative currencies. This is also an important reason why scarce assets will rise sharply as soon as the currency is over-issued.
In addition to scarcity, Bitcoin has two practical values: First, it accelerates the digital development of the global currency system. Facing the challenge of digital currency represented by Bitcoin, central banks of various countries began to closely follow technological development trends, and began to invest manpower and material resources to develop their own digital currency as an important raw material for the creation of new financial products. After all, the digitalization of currency in the future is a general trend. . The second is that Bitcoin is complementary to the current traditional investment targets. They unite to fight against inflation, complement investors’ asset allocation, and have corresponding cyclical investment value.
Some overseas investment institutions have analyzed that this round of Bitcoin’s rise is not only a strong push from actual demand, but also a clear logic of historical evolution. Because the global spread of the new crown pneumonia epidemic has increased investor demand for hedging. At the same time, after the global economy in 2020 suffered the biggest drop since World War II due to the impact of the epidemic, the risks of international finance have also been released to a greater extent. Strong rise after Bitcoin.
Tracing back to the origin of Bitcoin’s birth, we can find that it has anti-inflation characteristics. Bitcoin is a virtual encrypted digital currency proposed by Satoshi Nakamoto, who is said to be a Japanese-American, on November 1, 2008 and born on January 3, 2009. It was initially set to be only available online “Mining” generates a total of 21 million rules. This decentralized digital currency was designed from the beginning to counter the inflation caused by the government’s over-issuance of legal tender. In addition, the upper limit of Bitcoin supply and the law of halving the circulation every 4 years make it inherently anti-inflationary.
Capital has the most sensitive sense of smell. Under the impact of the epidemic, banks, insurance companies, and financial institutions in various countries have begun to embrace the cryptocurrency market, including Bitcoin, on a large scale due to the need to hedge against inflation risks. Bitcoin’s market value can quickly reach this height, mainly because institutional funds replaced global retail investors running into the market. For example, after confirming the purchase of Bitcoin worth more than 745 million U.S. dollars, the Rufu Investment Company in the United Kingdom issued a report saying, “The current macroeconomic environment has set a perfect environment for this asset that combines the advantages of technology and gold. Monetary policy, inflated public debt, and dissatisfaction with the government all provide a powerful boost to investing in Bitcoin. In a long period of time, the devaluation of any other currency will strengthen the purchasing power of Bitcoin.”
In addition, the international community has widely questioned the credit of the US dollar. This status quo has also strengthened the willingness to diversify assets. As we all know, before the outbreak of the new crown pneumonia, the US government and US-owned companies relied on the US dollar’s global reserve currency status and the Fed’s long-term ultra-low interest rate policy to issue a huge amount of debt to allow the world to share its costs. As of September 30 last year, the U.S. government’s budget deficit soared to a record high of 3.1 trillion U.S. dollars. Many observers have begun to warn that this kind of debt is unsustainable-once the crisis hits, “money printing operations” such as quantitative easing will appear again, and the dollar’s currency credit is bound to decline or even be overdrawn.
“When the price of Bitcoin broke through the 20,000 U.S. dollar mark, a large number of investors began to flood the cryptocurrency market, which once caused some cryptocurrency exchanges to experience stagnation or downtime.” William said bluntly, which indicates that the main investment force in the market may be Structural changes have occurred, shifting from institutional investors to small and medium investors. The excitement and fanaticism of the market is further amplified, which may cause large fluctuations in the price of Bitcoin.
While we are paying attention to the rise in the price of Bitcoin, we must also see its previous decline, and it even fell miserably. According to the calculation of the past trend chart of Bitcoin price, from 2016 to today, Bitcoin has fallen by 20% or more, a total of 10 times; there have been 7 times when it has fallen by 30%; and there have been more than 48% drops. 4 times, which means there will be 4 misfortunes in 5 years-the price of Bitcoin in your hand will be cut off in a certain period of time. The most recent big drop was in December 2017. The price of Bitcoin once broke a historical record, reaching a high of $20089, but it fell by more than 50% a month later, and fell all the way to December 2018, with a drop of 84%.
Compared with the end of 2019, Bitcoin has now achieved a five-fold increase. Will this appreciation rhythm continue? Liang Zhonghua believes that there are two possibilities with high probability in the future: First, because the volume of Bitcoin becomes larger and larger, the overall volatility will slow down. Second, from the perspective of global economic development, it is unlikely that there will be a global liquidity crisis similar to that in March last year, so the probability of an extreme situation such as a sharp drop in the currency price below $4,000 is relatively small.
In short, in the face of the large volatility of bitcoin prices, how to calm down is the key. In addition, we must pay attention to the security of asset custody. Now that there are many exchanges, wallets, and custodians, the hidden dangers of platform security cannot be ignored. Foreign investors with personal custody capabilities will put most of their assets in “cold wallets” (ie offline If they don’t have the ability to custodial, they will choose a service platform with good credit and a big brand for hosting. Domestic investors should stay away from Bitcoin and use it as a reference for investment indexes at best.