Like the bubble period in 2017, the price of Bitcoin has been rising again recently. As of early Wednesday, the price of Bitcoin once again exceeded $18,000. This is also the second highest price in history that Bitcoin has reached since December 2017 (the unit price exceeded $20,000).
But everyone should remember that the cryptocurrency market plummeted in 2018 and retail investors lost their fortunes. And this time, we hope to unveil the mystery of Bitcoin’s latest price movement once again.
There are indeed many influencing factors that make sense at present-including Tether, PayPal’s support for Bitcoin, and China’s powerful crackdown on OTC transactions, and so on. But before we discuss in detail, let us reiterate the elements that determine the price of Bitcoin, or the basic source of its value.
Bitcoin miners refer to participants who protect the Bitcoin network by “mining” the next transaction block on the blockchain. They need to sell their newly created Bitcoin to exchange it for real money and silver to pay for their High electricity bills for mining.
Every day, the total cash out of the Bitcoin ecosystem is about 8 million to 10 million US dollars. Therefore, in order to ensure that most miners can profit, Bitcoin naturally needs to adjust its pricing accordingly. If the price does not match the input, a considerable number of miners will immediately choose to withdraw, which will cause the entire Bitcoin network to face huge risks. It is precisely with the overall satisfaction of the miners that the current total market value of Bitcoin has reached 345 billion US dollars.
Now let’s go back to May 11th, a very important day for Bitcoin. Bitcoin’s “halving” will be officially triggered, which means that the reward for mining new blocks will be cut to half. According to the plan, the Bitcoin network will halve mining revenue every four years.
Before May 11th, miners around the world can receive 1,800 bitcoins in the form of rewards every day, and the exchange price of each bitcoin is $5,000. But after the halving, the network will only generate 900 new bitcoins a day, and at this time miners will sell these precious cryptocurrencies for at least $10,000.
But trouble always comes unexpectedly. From February to March of this year, the world was plagued by the first wave of the epidemic crisis, and the price of Bitcoin shrank by half, to about $5,000-only barely covering the cost of mining energy after the halving. The miners are beginning to struggle, how do they continue to operate? Who will guarantee their normal profits? At that time, companies represented by Tether (publishing a stable currency of the same name linked to the US dollar) began to emerge quickly, and their currency circulation reached the highest point in the five years since its establishment.
Tether coin can be said to be the main source of liquidity for non-bank cryptocurrency exchanges, and this type of exchange occupies a huge share of bitcoin trading. At present, the total value of liquid Tether coins in the cryptocurrency market is about 18 billion U.S. dollars, and almost no one can really tell what is supporting its value.
Because Tether currency lacks transparency and fails to provide long-term promised audit results, and the New York Attorney General is conducting fraud investigations on Tether together with the cryptocurrency exchange Bitfinex, so a more reliable guess is that its value was originally It’s imaginary. Many people directly suspect that Tether is simply a scam.
(Tether initially promised to be used as an IOU, that is, a Tether coin represents a certain amount of redeemable dollars. But after that, this company registered in the British Virgin Islands began to issue a large number of Tether coins, and no one seemed to really redeem it. Returned the corresponding U.S. dollar. The only exception is that in October 2018, Tether recovered $850 million from its payment processor Crypto Capital and destroyed the corresponding 500 million Tether coins.)
According to data released by Nomics, starting from the beginning of 2020, the total value of Tether coins in circulation is only 4.3 billion US dollars. In the first three months of this year, this number has remained stable. But starting on March 18, just five days after the price of Bitcoin fell below $5,000, Tether’s shipping machine began to fully start.
Bitcoin price and USD stablecoin supply.
In March this year, Tether issued $1.9 billion worth of Tether; in April, it launched an additional $1.5 billion worth of Tether. This can be regarded as cryptocurrency’s own economic stimulus plan. So during this year’s halving event, the price of Bitcoin soared to $10,000. However, Tether’s delivery behavior is still non-stop, causing the price of Bitcoin to skyrocket and providing a good cashing opportunity for position holders.
In May, June, and July this year, Tether issued Tether coins worth 6 billion U.S. dollars. By August, when the price of Bitcoin reached a high of $12,000, Tether coin issued another $2.5 billion. When Bitcoin fell to $10,000 in September, Tether injected another $2 billion. Despite this, Bitcoin was no longer able to return to the $12,000 price level and began to hover in the $10,000 range for a long time.
Next is October of this year, just after the U.S. prosecutor violated the reserve commitment and anti-money laundering obligations of the founder of the Bitcoin derivatives exchange BitMEX registered in Seychelles and located in Hong Kong, the price of Bitcoin began to rise again. . What exactly is going on?
Tether ushered in a blowout
There is a theory that the increasing issuance of Tether continues to be used to purchase Bitcoin. And strong market demand will always raise prices-even if the root of all this is just a kind of “fake money” with no real value.
And unlike the situation in 2017, raising the price of Bitcoin requires a stronger force than before. (As of the end of 2017, before the Bitcoin bubble burst, the total value of Tether coins in circulation on the market was only 1.3 billion U.S. dollars, much lower than the current level.) Bitcoin skeptic, Nicholas Weaver, researcher at the University of Berkeley International Computer Research Institute I firmly believe that this wave of Bitcoin price fluctuations is absolutely man-made.
He said, “The current additional issuance of Tether can completely explain this wave of price increases, because it far exceeds the total amount of all new bitcoins purchased. If everything happens naturally, then the outstanding amount of non-fraudulent stablecoins should be at least There has been a significant increase.”
In other words, if Tether really has a dollar peg to it, the market demand for regulated stablecoins should also be consistent with Tether. But this is not the case. At present, only Circle’s USDC stable currency has ushered in substantial growth, and the growth rate is far from comparable to Tether currency. Moreover, the growth of USDC is mainly due to the rapid expansion of the Decentralized Finance (DeFi) market.
Horge Stolfi, a professor of computer science at Campinas State University in Brazil, wrote to the United States Securities and Exchange Commission (SEC) in 2016, emphasizing the risks of issuing Bitcoin ETFs.
He mentioned, “As long as you can still buy bitcoin with fake money, the price of bitcoin can be raised to any level in exchange for the continued participation of miners.” He also mentioned in a Twitter post that the price of bitcoin The higher the value, the faster real money will flow out of the system-because miners will be more willing to use all the new bitcoins in exchange for cash. Multiply Bitcoin’s current price of $18,600 by 900, and you will realize that the average daily transaction volume is nearly $17 million. He stated that investors will never get back the money.
Klyith (nickname) from 4Chan’s predecessor website Something Awful explained the trick of Tether coins in this way: “A bunch of elves came and started to sweep the paper currency market with fairy-tale gold produced out of thin air, pushing the price to amazing High. But when any participant intends to buy things with gold or pay taxes in other towns, they will instantly become worthless stones.”
“The most terrible thing is that the elves can tell at a glance which is real gold and which is artificially made fake money. In the end, it will only be the hard-working farmers who are injured. And if no action is taken, the real money in the entire town Jin will be looted by them. What do you plan to do instead of you?”
Of course, in addition to the troubled Tether, people have also linked two other events with the current round of Bitcoin price surge. The media is obviously paying more attention to these two stories.
PayPal supports Bitcoin payments
As one of the world’s largest companies, PayPal is actively promoting cryptocurrency and giving Bitcoin investors a safe psychological support. After all, if Bitcoin is really a pure Ponzi scheme, why would such a well-known and respected company be willing to accept it? In addition, MicroStrategy, Square, Fidelity Investments, and Mexico’s third-richest Ricardo Salinas Pliego have all expressed their willingness to accept Bitcoin payments on the Internet.
On October 21 this year, PayPal announced a new service that allows users to buy and sell cryptocurrencies in cash. On November 12, the service was officially opened to American customers, who can now buy and sell Bitcoin, Bitcoin Cash, Ethereum, and Litecoin through the PayPal wallet.
If you are a PayPal user and have completed the necessary authentication, then there is no need for additional troublesome operations-from now on, you are already a qualified cryptocurrency trader.
Of course, PayPal wallets are not as flexible as exchanges. You cannot complete cryptocurrency transfers as easily as in an exchange. But everyone can use cryptocurrency to pay at least 26 million merchants on PayPal—the only difference is that they still receive cash in the end. In addition, related transactions require high handling fees, such as a 2.3% fee for goods under $100. From this point of view, users are actually betting against PayPal, betting that the price of Bitcoin will continue to rise.
Stolfi described PayPal’s behavior on Twitter as “a meta-casino where everyone is placing a heavy bet on a special internal chip that contains random variable values.”
Another broader view is that PayPal is forcing people who don’t understand how cryptocurrencies actually work, or who don’t understand Tether and the risks it poses to cryptocurrencies, into the pit. Once government authorities decide to arrest Tether’s operators and freeze their assets (similar to what happened in Liberty Reserve in 2013), it may cause the price of Bitcoin to plummet.
Maybe some friends still think that Tether has little effect on the price of Bitcoin. Here we might recall the testimony of Tether/Bitfinex CFO Giancarlo Devasini when facing the New York State Attorney General in 2019, “I want to emphasize that all this is extremely dangerous for the entire cryptocurrency community. Once Tether If it ceases to exist, then the price of Bitcoin is likely to fall below $1,000.”
PayPal’s transaction volume this month has reached 85% of the transaction volume of Binance.US, the US branch of the world’s major cryptocurrency exchange. Although the absolute trading volume of Binance.US itself is not large, it has already shown a new market development direction.
There is a view that PayPal’s entry into the cryptocurrency market means that Bitcoin has been “sentenced to death.” Tether and the exchanges that support Tether are working hard to increase the price of Bitcoin, hoping to attract as much cash as possible into the existing system during the transaction.
Paypal’s actions represent the death penalty for cryptocurrency. People only need to “buy bitcoins” directly on PayPal, instead of sending instructions to exchanges and Tether. The whole process has been greatly simplified.
Because of this, before PayPal can really dominate everything, all parties must have another dying carnival, using people’s anxiety as much as possible to cut a wave of leeks.
— Trolly McTrollface (@Tr0llyTr0llFace) November 18, 2020
China cracks down on over-the-counter transactions
According to related news, the threshold for Bitcoin miners from China to sell Bitcoin on over-the-counter trading platforms is increasing.
Since China banned cryptocurrency exchanges three years ago, OTC exchanges (that is, buyers and sellers can directly trade here) have become a convenient way for Chinese people to participate in cryptocurrency transactions. Many Bitcoin miners from China naturally choose to sell their Bitcoin assets in this way.
Recently, in order to crack down on Internet gambling and curb capital outflows, Chinese authorities have begun cracking down on over-the-counter trading activities. If the authorities determine that your transaction partner has money laundering intent, your bank account may be frozen immediately. The result is even worse, miners have to take more preventive measures to reduce the frequency of cash out as much as possible.
Some people speculate that this will make it difficult for bitcoin miners to sell their bitcoins and cause a liquidity crisis. In other words, buyers can obtain fewer bitcoins, which drives market demand in disguise.
But ICSI’s Weaver warned that all current rational explanations for bitcoin prices are in vain. He emphasized, “The market is crazy, don’t talk logic to the crazy.”
He also emphasized that in a purely rational world, if other markets are both efficient and honest, then closing the OTC trading platform will not have any impact on the price of Bitcoin. He said that this type of over-the-counter trading platform actually represents the ability of miners to pay, and Chinese miners hope to use this to convert bitcoins into cash and then convert them overseas to evade capital controls. He also added that it is foreseeable that if China continues to crack down on over-the-counter trading platforms, the number of bitcoins circulating on over-the-counter trading channels will also decrease and continue to push up bitcoin prices. The only way out is for miners to switch to relatively formal bank exchanges. But he asked back, “It also doesn’t make any sense. How many bank-type exchanges are still left?”
But at this moment, Tether is still alive, and alive and well.
