As of February 7th, the price of a bitcoin was reported at 39,000 US dollars, which is the first time it broke through the 40,000 US dollar mark on January 8th and it has returned to a high point. Compared to less than US$30,000 at the beginning of the year, this represents an increase of more than 25%.
There is a sharp rise and there will be a sharp fall, which is the consistent performance of Bitcoin. On January 11 this year, Bitcoin fell from nearly 40,000 U.S. dollars to 30,000 U.S. dollars. It plummeted by nearly 20% in one day. More than 200,000 people broke their positions. The amount involved was nearly 14 billion yuan. The currency circle “wailing” .
Under the skyrocketing rise and fall, some people madly increased their weights, hoping to “give a fight” to realize the freedom of wealth, while others bluntly believed that Bitcoin is a “giant bubble” and that people in the currency circle are veritable “gamblers”. So, why is the Bitcoin market so volatile? What is the future trend? What risks may be faced when entering the game at this time?
Skyrocketing and falling is the norm
“Bitcoin is a high-risk asset, and its price fluctuates greatly. The skyrocketing and plummeting are not accidental, but normal.” William Li, chief researcher of OKEx Research Institute, a well-known digital asset trading platform, told reporters.
Looking back at Bitcoin’s past market, it is very appropriate to describe it as a “roller coaster”. According to statistics, in the past year, Bitcoin has experienced an average monthly increase or decrease of more than 10% for a total of 8 months. Earlier in December 2017, Bitcoin set a record of 19,783 U.S. dollars, and then the price fell all the way, once fell below 3,000 U.S. dollars, and fell 80% in a year.
Since October last year, Bitcoin has ushered in a bull market with the pursuit of some overseas institutional investors, rising from $10,000 to a maximum of $40,000. In this process, more and more small and medium-sized investors began to follow in and use loans and derivatives trading to add leverage to speculate coins, especially after the Bitcoin price exceeded $20,000 in late December last year, this phenomenon intensified.
“From historical experience, a bubble cycle can be divided into five stages: incubation, prosperity, excitement, distress, and recession. The recent market plunge and subsequent rebound are just one of the typical manifestations of the dilemma in the bubble cycle. “Li William said.
The rise in risk aversion has also become an important reason for this round of Bitcoin bull market. Since the outbreak of the new crown pneumonia, the global economy has been in a downturn, and major central banks around the world have implemented loose monetary policies, which has pushed up market inflation expectations. In order to avoid damage to the nominal principal and pursue higher returns, investors’ demand for hoarding cash has naturally evolved into a demand for gold and Bitcoin.
But the current situation has changed. William Li said that with the launch of vaccines in various countries, it will promote global economic recovery. Under the dual pressure of economic recovery expectations and high inflation expectations, the market speculates that major central banks in the world will gradually withdraw from the existing easing policies. In particular, in the minutes of the Fed meeting in December 2020 announced recently, discussions on reducing the scale of bond purchases appeared for the first time, which strengthened the market’s divergence on future monetary policy. “So we have seen the skyrocketing rise and fall of Bitcoin in recent days.” William Li said.
Depression in the future
Although Bitcoin’s skyrocketing has attracted some investors, it has also triggered more and more bubble warnings.
Unlike stocks or bonds, Bitcoin has no actual value support, sovereign credit and commercial credit, and does not generate any predictable cash flow. Its price is obviously dominated by the relationship between supply and demand, showing large fluctuations. Therefore, the industry believes that there must be a lot of bubbles.
Howard Wang, co-founder of Convoy Investments LLC, stated in a recent report that Bitcoin is in a bubble and its current growth rate is unsustainable, and its existence is largely a speculative asset.
Michael Hartnett, chief investment strategist at Bank of America Securities, publicly stated that the recent surge in Bitcoin prices may be another case of speculative fanaticism, and Bitcoin looks like the “mother of all bubbles.”
For the future trend of Bitcoin, the market is also divided. Among them, there are many good ones. Some people predict that Bitcoin will reach more than 10 times its current price in the next two years.
But more is worry. Wang Qian, chief economist of the Asia-Pacific region of Pioneer Investment Strategy and Research Department, believes that the supply of Bitcoin is limited, and the supply cannot be expanded with the growth of economic activity. This means that although Bitcoin can avoid inflation, it is inevitable. Will bring deflation. Therefore, it is difficult for Bitcoin to become a legal payment method, and it is difficult for it to be widely used globally.
Scott Minerd, chief investment officer of the Guggenheim Investment Company, recently posted on social accounts that “the parabolic rise of Bitcoin is not sustainable in the short term” and “it’s time to get some money out”.
“In the current economic environment of high inflation and low growth, overseas institutional investors have entered the market in large numbers. But what institutional investors care about is the preservation and appreciation of assets, not the’Bitcoin belief’ or’blockchain revolution’ Feelings.” William Li said that in the medium and long term, after the epidemic has gradually eased, with the gradual recovery of the economy, global monetary policy will also turn from loose to moderately tight. At that time, institutional investors are likely to sell bitcoin, and the bitcoin market will fall into depression.
Participate in preparation for bankruptcy
On the one hand, the price of Bitcoin is soaring all the way, and on the other, a series of negative news such as virtual currency exchanges running off, frequent downtime of trading platforms, and fraudulent extortion continue to spread. The risks hidden behind the hot virtual currency market are gradually exposed.
Some trading platforms have malicious downtime to manipulate the market. For example, on January 11, one of the world’s largest virtual asset trading platforms, Coinbase, experienced a downtime that lasted more than 4 hours, during which users could not complete transactions and withdrawals normally. Some market participants suspect that Coinbase may be suspected of manipulating the market, which not only affects investors’ trading operations, but may also force investors to liquidate their positions due to price changes.
The runaway of small and medium exchanges also adds to the risk of investing in Bitcoin. In the three months at the end of last year alone, more than 10 exchanges including BG Exchange, CEO Global, and DragonEx announced the suspension of withdrawals or disappearance. These exchange servers are often set up overseas, and the application of law is controversial. Once the exchange runs off, it will be difficult for investors to protect their rights.
In addition, Bitcoin investment is also plagued by hacking, fraud and extortion. According to relevant statistics, there were 151 fraud incidents related to virtual currencies in 2020, a four-fold increase from 2019, with losses exceeding US$3.2 billion.
“Bitcoin is a high-risk investment! If you want to invest in Bitcoin, please be prepared to lose your money!” The Financial Conduct Authority (FCA) recently issued a warning, and on January 6, FCA has banned retail investors Sell products that track the price of virtual currencies such as Bitcoin. In my country, seven ministries and commissions including the People’s Bank of China issued a joint announcement as early as September 2017, clarifying that token issuance is an unauthorized and illegal public financing activity. No organization or individual may illegally engage in token issuance financing activities.
Increasingly strict global regulation will undoubtedly bring uncertainty to Bitcoin. In this regard, William Li reminded that investors should correctly understand the investment positioning of Bitcoin. Bitcoin is a high-risk asset. Do not try to realize the so-called freedom of wealth by investing in Bitcoin. Investing in Bitcoin must be prepared for losses. Investors who use debt and high leverage to speculate may need to be prepared for bankruptcy or even debt.
Source: Economic Daily
Author: Li Hualin