In the past few days, Bitcoin has continuously hit a record high, up to 24,220 US dollars. Bitcoin has increased by more than 240% this year.
If the Bitcoin price hit a new low of the year ($3783) in March, as of December 17, its price has skyrocketed more than 6 times.
Some organizations said that since November this year, fund products that invest in gold have continued to lighten their positions, and some funds have flowed to Bitcoin. JPMorgan Chase strategists pointed out in a recent report that the trend of investing in Bitcoin is gradually shifting from family financial institutions and wealthy investors to insurance companies and pension funds, although these insurance companies and pension funds are unlikely to overpay Bitcoin. However, even if only a small amount of funds enter the market, it may have a major impact.
Ray Dalio, the founder of Bridgewater Fund, who had insisted on being “short” on Bitcoin before, also let go. Dalio previously stated at the event that Bitcoin and other cryptocurrencies have become interesting and gold-like asset substitutes in the past 10 years. “Adding these types of assets to the portfolio can diversify the portfolio.” However, he also said that if compared with gold, he still prefers the assets that the central bank intends to hold and use for value exchange, namely gold.
This time Bitcoin hit a record high, which is fundamentally different from the previous record high. The historical high in 2017 is purely the result of speculators’ capital speculation, and after a full three years of new highs, what we see is the recognition of the value of Bitcoin, the help of traditional financial institutions, coupled with the economic downturn and the edge The result of joint action under the stimulation of external environment such as politics.
This also determines that the bull market will go more stable and longer. There are several factors that I want to focus on here, which will also make you firm up your confidence in investing in Bitcoin.
Internal motivation: Bitcoin value is recognized
This Bitcoin rise is generally based on a supply-demand logic of “scarce is expensive”. The total amount of Bitcoin is scarce, and there is only an upper limit of 21 million. After each halving, there will be a round of rising market. In May of this year, the bitcoin mining rewards were halved for the third time, and the output was reduced from 12.5 to 6.25 BTC, which intensified the market’s tight expectations of its supply and demand. .
With the advent of the digital age, more and more people have begun to accept the new concept of “digital gold”. “Digital Gold” is based on mathematical models. Take Bitcoin’s “Proof of work consensus model” as an example. Users need to find a series of randomly selected numbers in a huge data set. The stock of bitcoin is limited. Therefore, as more bitcoins are “mined”, it becomes more and more difficult to find the remaining bitcoins, and the required resources (that is, the electricity that supports the operation of the mining machine) And costs (electricity costs, labor costs, etc.) have also continued to rise, resulting in a limited supply of Bitcoin and the overall supply trend is decreasing over time, which has brought about the scarcity of Bitcoin.
Therefore, the value consensus is the capital for Bitcoin to challenge gold. It’s like electronic payment: when people believe that the numbers in an electronic bank account can be exchanged and withdrawn, these numbers have value.
It has only been twelve years since the emergence of Bitcoin, and a consensus based on the value of the new “digital gold” has been initially formed. Billionaire investor and former Goldman Sachs partner Mike Novogratz recently stated that Bitcoin is like “digital gold”, a store of value, and will not be used like traditional currencies for at least the next five years.
He explained that Bitcoin is still a relatively small asset class, which is mostly favored by millennial investors, and its influence in the financial market is not large, because traditional investors usually choose physical gold as wealth reserve.
Although Novogratz has always supported the widespread adoption of digital currencies and believes that Bitcoin has more room for growth, he also emphasized that Bitcoin will not be used in daily transactions anytime soon. “Bitcoin is like digital gold and will continue to rise. More and more people use it as part of their investment portfolio.” He said.
Continued momentum: more traditional financial institutions flood in
Since the beginning of this year, Wall Street traditional financial companies have entered the game. According to a survey conducted by Bank of America between December 4 and December 10, about 15% of fund managers said that Bitcoin is currently the third most crowded transaction, second only to long technology stocks and short US dollars. These fund managers manage $534 billion in assets.
For example, the famous Guggenheim Partners LLC (Guggenheim Partners LLC) is one of the institutional investors focusing on cryptocurrencies. The agency recently stated that it may invest up to 10% of its $5.3 billion macro opportunity fund in one bitcoin. Trust funds; hedge fund giant Paul Tudor Jones has also joined the Bitcoin investment trend.
It is reported that Ruffer Investment Management, a large British investment institution, will switch 2.5% of its assets under management to Bitcoin to diversify its investment in anti-inflation bonds such as gold. MicroStrategy, a database software company listed on the US stock market, also began investing heavily in Bitcoin in July this year. There is a view that the company’s investment in Bitcoin largely represents the attitude of several traditional financial giants. In the list of MicroStrategy’s top ten shareholders, there are BlackRock Assets, Pioneer Pilot Fund, Renaissance Fund, etc.
Some Wall Street institutions that cannot directly invest in encrypted assets due to compliance requirements have begun to deploy through this type of trust. In this type of trust, Grayscale Trust has been the limelight this year. Institutions dominate the investor composition of Grayscale Funds.
Grayscale Bitcoin Trust (GBTC) is Grayscale’s largest encrypted digital asset trust product. GBTC funds are similar to ETF funds, but there is no redemption mechanism. There is also a 6-month lock-up period for the secondary market. GBTC’s primary market subscription is only open to qualified investors. According to the third quarterly report, 80% of its customers are institutional investors (mainly hedge funds), so it is a good indicator of institutional capital entry. Grayscale has increased its holdings of 115,236 bitcoins in the fourth quarter of this year, equivalent to 2.2 billion US dollars, and the bitcoin liquidity crisis is coming.
The new cryptocurrency service launched by PayPal brings more liquidity to Bitcoin. This service enables PayPal account holders in the United States to buy, hold and sell cryptocurrencies on PayPal. This development makes cryptocurrency a source of e-commerce funding for its 26 million merchants. PayPal’s announcement caused the price of Bitcoin to rise by more than 5% on the day and exceeded $12,400. PayPal’s support for cryptocurrencies has had a huge impact on the market because it has promoted the use of virtual currencies worldwide and accelerated the adoption and use of new digital currencies.
The consensus in the industry is that encrypted assets have now withdrawn from competition with legal currencies, and the supervision from global regulatory agencies will be stricter. Bitcoin does have a huge bubble, but its properties have changed.
Next, there are two bigger benefits that are worth looking forward to. The Chicago Mercantile Exchange (Chicago Mercantile Exchange), the world’s largest and most diversified derivatives trading market, announced its intention to launch ether futures on February 8, 2021, pending regulatory review. Ethereum futures will join CME Group’s Bitcoin futures and options. The Chicago Mercantile Exchange (CME) Bitcoin futures is about to celebrate its third anniversary, and many participants, including institutional investors, have significantly increased their adoption of Bitcoin.
In addition, the investment fund Ruffer Investment Company announced a large-scale acquisition of BTC. The UK-based company stated that it has allocated $744 million in Bitcoin to protect the value of its assets in response to the depreciation of the legal currency. According to the company, investing in Bitcoin is a defensive move, diversifying the company’s investment in gold and inflation-linked bonds. It also added that Bitcoin can hedge against inflation and other currency risks.
Last but not least is the two-day Fed meeting held on December 15-16. US regulators keep key interest rates at record low levels (in the range of 0-0.25%). FRS also maintains a monthly asset repurchase program of US$120 billion and may increase the program if necessary.
The unprecedented liquidity injection in the economies of developed countries is the main driver of Bitcoin’s growth in 2020. A similar statement issued by FRS at the last conference this year may become another fuse for Bitcoin’s growth.
The last point is that the recent Coinbase IPO event may be a milestone in the development of Bitcoin. The listing of Coinbase may lay the foundation for the future development of the entire industry. Industry insiders pointed out that this is a milestone in the industry and a new stage of economic legalization. It confirms that the industry is maturing and attracts strong players. This proves that cryptocurrency is not just a speculative game started by a group of avid tech geeks in the garage.
As the traditional financial order is in urgent need of a new round of deconstruction and reshaping, central banks in many countries have maintained a positive attitude towards the establishment of a digital currency system, whether it is S&P Dow Jones Indices’ announcement that it will launch a cryptocurrency index in 2021 or the Chicago Mercantile Exchange Group ( CME) will launch ethereum futures products on February 8, 2021, or Singapore and Hong Kong will begin to approve compliant encrypted digital currency trading services. This series of measures are all for Bitcoin trading compliance. Continue to add guarantee support.
External motivation: multiple uncertain factors stimulate
In the last “Flow and Liquidity Report” of JPMorgan Chase this year, quantum engineer Nikolaos Panigirtzoglou wrote that as the year comes to an end, look at how the investment landscape changes during 2020, or put it another way, “In this year Here, how are the overall growth performance of different asset classes and types of investors affected by the global pandemic and response policies?”
As Panigirtozglou wrote in its annual review, the most noticeable increase in 2020 is the total outstanding debt. In the first half of 20 years, the total outstanding debt has increased by approximately US$14tr. The bank currently expects the The total debt growth was US$21tr, especially reflecting the continued strength of bond issuance. Among them, the increase in bonds accounted for approximately US$13 trillion, reflecting a significant increase in government deficits as they tried to stabilize the impact on income, and record corporate bond issuance as companies sought to increase cash buffers to withstand the impact of cash flow. The rest is a combination of bank loans, bills and other short-term bills, local government bonds in emerging markets, and other non-market debt.
This is one way of saying that in order to maintain the legal currency system, central bankers have to print a large number of legal currency, and they have devalued assets by 40% in just six months.
However, in the context of low global interest rates, many institutions hope to obtain excess returns through encrypted assets. At present, the nominal US dollar market value of Barclays global negative-yield bonds has expanded to nearly 17 trillion US dollars, a new high this year and also the highest level since September 2019.
According to statistics, the size of global government bonds with negative real yields has doubled to US$31 trillion in the past two years. This means that if this nearly $17 trillion bond is held to maturity, investors will not only make money but lose money.
BlackRock also predicts that in the next five years, long-term government bonds in major developed countries may maintain negative interest rates (the debt pressure is huge), and the pursuit of yield will cause institutional funds to rotate out of bonds and invest in gold, Bitcoin, etc. without interest. Of non-traditional assets.
Stimulated by the downward pressure of the global economy, more people and institutions will enter the crypto world. In addition, uncertain factors including the US presidential election and the second wave of the European new crown pneumonia pandemic will help the rise of Bitcoin. The more turbulent the market, the weaker the dollar, and therefore, the stronger the cryptocurrency.
Regarding the U.S. election, many experts expressed their views in support of the growth of Bitcoin in the case of Joe Biden’s victory, and vice versa if Trump becomes the winner. As we all know, Trump has a negative attitude towards cryptocurrencies. In his view, because their value is extremely volatile, they cannot be regarded as currencies.
In the spring of 2020, the first wave of new crown pneumonia is raging, and the second wave of new crown pneumonia is even more harmful. Since September 2020, the economies of developed countries have once again stalled, which requires monetary central authorities to provide more fiscal stimulus, and once again raises the inflation risk of several major fiat currencies and the risk of deepening global economic recession. All these risks pose a serious threat to the safety of investors’ funds mainly allocated in legal tender. However, if demand cannot recover quickly, funds invested in stocks and bonds will not be protected from losses.
Especially the second wave of Covid-19 in Europe also played a role in Bitcoin’s growth in October. High market uncertainty and overall economic conditions force investors to move assets to safer places to protect their savings from possible inflation.
Since Bitcoin is often referred to as “digital gold” and is considered the most widely used cryptocurrency in the world, it offers an attractive long-term investment compared to cash. Like investors, families who are prepared to deal with the possible depreciation of the fiat currencies of central banks also regard Bitcoin as a safe alternative to savings.
Written at the end:
As shown in 2020, the future seems to be full of uncertainty and it is unlikely to plan and forecast, which will undoubtedly force people to find new ways to maintain the value of their assets and hedge against inflation. Therefore, due to the competitive advantage during turbulent times, the value of Bitcoin may be further enhanced.
However, the internal reference officer still wants to remind investors that Bitcoin is still a high-risk and unstable asset class, and it is normal for it to rise and fall. Like all asset classes, the crypto market will fluctuate over time. In the 2017 bubble, the price of Bitcoin climbed from less than $1,000 at the beginning of the year to approximately $20,000, and then fell to $3,000 in 2018.
Therefore, investors who do not have a mature investment mentality, and those who want to get rich overnight, should be cautious.
