In the new weekend of 2021, Bitcoin is still soaring. According to Coinbase market data, at 20 o’clock in the evening on January 2nd, Beijing time, Bitcoin stood at the $30,000 mark, rising by more than $4,000 within 24 hours.
Looking back at the Bitcoin bull market in 2017
Since China is a major producer and the United States is a major consumer, the positive difference in CPI between China and the United States is due to China’s overcapacity and excessive burden of rising raw material prices. The profits of Chinese foreign trade companies are under pressure. After supply-side reforms (de-capacity, de-inventory, deleveraging, cost reduction, and shortcomings) were implemented, then U.S. inflation began to rise, and interest rates began to rise in 2017.
Since 2010, China-US interest rate differentials have continued to rise, and capital inflows have continuously promoted the strengthening of the renminbi; while U.S. Treasury bond futures bottomed out at the end of 2013, yields peaked, the opportunity cost of funds declined, and market risk appetite increased. In 2013, due to the overcapacity in China, the return on real investment fell (the CPI gap between China and the United States remained positive during 2010-2017), the market risk appetite increased, the interest rate differential between China and the United States remained high, and the inflow of funds Start investing in virtual assets.
Since July 2014, China’s stock market has gradually turned bullish, and since January 2015, U.S. Treasury bond futures have peaked, Treasury bond yields have bottomed, the opportunity cost of funds has risen, risk appetite has fallen, and profits have been borne by China’s returns. As the money-making effect of the stock market continued to expand, domestic funds began to be heavily leveraged and capital flowed into the stock market. Then, under the background of the Securities Regulatory Commission’s investigation and deleveraging, A-shares began to collapse.
China’s foreign exchange reserves peaked in September 2014. There are two main reasons: one is that U.S. Treasury yields have peaked periodically, and Treasury bond yields have periodically bottomed out; second, the renminbi is overvalued, consuming foreign exchange reserves (previously The inflow of hot money is withdrawn), and foreign exchange reserves went through the process of deleveraging and checking capital allocation by the China Securities Regulatory Commission in 2015.
On August 11, 2015, the Central Bank of China announced the reform of the central price market and improved the central price quotation. It will refer to the closing price of the previous day and consider the supply and demand of foreign exchange to finally determine the central price quotation and announce a one-time depreciation of about 2%. , And then foreign exchange reserves began to accelerate the decline.
Foreign exchange reserves stabilized in December 2016. The main reason was that on December 30, 2016, the Central Bank issued the latest “Measures for the Management of Large-Value Transaction and Suspicious Transaction Reporting of Financial Institutions”. The biggest iteration is that if a user’s single-day transaction exceeds 5 Ten thousand renminbi or 10,000 U.S. dollars must be reported upwards as large transactions, while the previous minimum standard was 200,000 renminbi. This updated standard will be officially implemented on January 1, 2017.
Just entering 2017, China has strengthened its foreign exchange control. According to the latest domestic reports, the process of legally obtaining RMB exchange for foreign exchange is more complicated, and the country has stricter supervision on the use of personal foreign exchange purchases. When purchasing foreign exchange in RMB, you must fill in the “Application for Personal Foreign Exchange Purchase”, and for the first time it is clearly stated that foreign exchange purchases shall not be used for overseas purchases of houses, securities investment and other businesses. Foreign exchange control has indeed effectively controlled the further reduction of foreign exchange reserves.
When Bitcoin entered the 2017 bull market, it can be seen that just beginning in December 2016, the slope of the price trend became steeper and the growth rate became faster (the ordinate has taken the logarithm). Although foreign exchange reserves have stabilized and the renminbi has appreciated substantially after the exchange control, the core of the contradiction has not been resolved. Funds continue to flow out through other channels, and investors who enter the market after a substantial increase in leverage are taking over.
China banned Bitcoin in September 2017. At that time, the People’s Bank of my country decided to increase the supervision of Bitcoin, and began to close all virtual asset trading platforms at 12 noon on September 27, and users must submit all Bitcoins before then. Immediately there was a wave of Bitcoin correction, but speculation fever and low interest rate international hot money continued to push Bitcoin to rise further.
Analysis of the reasons for the rising momentum of Bitcoin
The main reasons can be attributed to two categories: one is the low interest rate environment, and the other is the strengthening of cross-border capital flows.
Low interest rate environment
For a long time, European and American markets have been in a period of low interest rates. Even if inflation begins, the Fed is unlikely to raise interest rates, but hawkish comments are not ruled out to manage expectations. As shown in the figure below, according to the total annual fiscal deficit of the United States, it can be seen that the deficit will increase sharply in 2020. The annual interest cost of the United States government will eat up a large part of the federal budget. And the greater the debt burden, the greater the interest rate changes, even if Very subtle changes will also become more sensitive and more likely to form a crowding-out effect on private investment.
Since the outbreak of the financial crisis in 2008, the United States has experienced three rounds of QE and did not start raising interest rates until 2017. The government deficit in 2020 is twice that of 2009, and the debt burden is much larger than in 2009. Therefore, it can be expected that interest rate hikes are unlikely in the next 10 years (except for the Middle East war), and the government will continue to borrow money, part of it will repay interest and part of it will increase social welfare.
Cross-border capital flows
In today’s global economic integration, the low US dollar interest rate, the aging population, the excessive debt burden of consumer countries, and the excessive gap between the rich and the poor have led to insufficient domestic demand and excessive hot money. The main contradiction for emerging markets is foreign exchange. Scarce and cross-border capital flows in and out.
The emergence of encrypted assets provides an important solution to this type of problem. Due to the low transaction cost, fast transaction speed, and large transaction scale of Bitcoin, in some countries controlled by capital, the capital of the Bitcoin channel has been formed. Fleeing. The capital flight has a positive impact on Bitcoin, and the continuous capital flight has brought a continuous positive impact on Bitcoin. This may also be the core factor for the long-term rise of Bitcoin in recent years.
Bitcoin market outlook trend analysis
According to the Bitcoin price and U.S. short-term Treasury futures chart, it can be seen that short-term U.S. Treasury bonds bottomed out in November 2018, and Bitcoin bottomed out in December 2018. The interest rate differential drives capital flows and the demand for cross-border capital flows increases. , Which pushed up the price of Bitcoin.
At present, the new coronavirus has spread and spread in a large area around the world. Governments in various countries are raising debts in order to reduce the negative impact of the virus on the economy. The return on investment in the real economy is low. The yield of U.S. Treasury bonds continues to remain low due to the massive purchase by the Federal Reserve. In addition, the interest rate differentials with various countries continue to remain positive. The combination of these factors has caused a large amount of funds to flow out of the United States, the dollar has depreciated, and various countries have seen asset prices rise.
The relationship between the world and the United States is very much like that of China and the United States in 2014 (when the US Treasury bond yields fell, and the spread of interest rates around the world continued to expand, resulting in low investment yields). Bitcoin bottomed in 2015, continued to rise in 2016, and continued to accelerate in 2017; China’s foreign exchange reserves peaked in September 2014, U.S. Treasury yields bottomed in 2015, RMB began to depreciate, and foreign exchange reserves decreased; at the end of 2016 China began foreign exchange controls, the renminbi appreciated, foreign exchange reserves stabilized, and Bitcoin accelerated. In 2017, the Chinese market accounted for 80% of the Bitcoin trading market.
to sum up
As the subsequent spreads begin to rise, Bitcoin’s hedging properties will be more prominent. At present, the Bitcoin bull market precedes the gold bull market. Bitcoin’s hedging properties come from foreign exchange runs, and gold’s hedging properties come from credit hedging.
