The global economy faces the biggest crisis in 11 years.
In theory, this should be the moment when Bitcoin shines, and there is an opportunity to prove that it is an unrelated asset that is not affected by political risks. In the end, the results may end. But there is a bumpy road ahead, both for bitcoin and nocoiners.
Before we make bitcoin up or down, let's take a deeper look at why the state of global finance is so disturbing.
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It all started on Monday, and the RMB exchange rate against the US dollar fell below RMB 7.0.
Almost at the same time, the US Treasury Department stated that China is listed as a “currency manipulator”. This move will theoretically provide the Trump administration with legal protection and impose punitive sanctions against China. The market is uneasy about Sino-US trade frictions, which is a tit-for-tat feedback loop against exchange rate depreciation, fueling a destructive downward spiral of trade and growth.
Now, this fear may never happen.
On Thursday, the People's Bank of China helped ease investor concerns. When buying more renminbi to stabilize its value, it implies that it is not currently intended to use the exchange rate as a trading weapon.
In addition, the US statement is meaningless.
According to the Ministry of Finance's own definition, manipulation requires sustained, one-sided intervention in the market to weaken the national currency. However, the decline of the renminbi was due to the fact that the People's Bank of China briefly cut the interventions that previously supported it.
If there is, China has been opposed to market manipulation for the past five years, supporting the appreciation of the renminbi and hoping to reduce market manipulation. All this is to re-adjust the national economic growth model and keep it away from dependence on foreign exports.
On this basis, the International Monetary Fund or the World Trade Organization will never support the Trump administration’s case that China is a currency manipulator. If unilaterally retaliating against China on this basis, the United States is vulnerable to very harmful International sanctions.
The problem is that the global political and economic environment does not make people believe that politicians will act rationally. In the era when the major Western countries have withdrawn from the neoliberal norms of the 1990s and 1980s, the facts and the views of multilateral institutions are no longer so important. Therefore, if in the near future, the market is experiencing more extreme turmoil due to the risk of exchange rate war, don't be surprised.
Any upgrade will lead to a spiral of global situation. The weakening of the renminbi means that all countries that trade with China are at a disadvantage. Therefore, they will also feel the need to lower the exchange rate of the local currency, which means that their trading partners will also feel pressure in turn.
Any country that has a nominally free floating currency will not achieve this through intervention or direct depreciation; instead, they will use a rate cut, which will reduce the demand for the national currency and produce a similar effect. Central banks do not even need to prove that such monetary cuts are reasonable; they will only point out that a global trade war is undermining the domestic economic outlook.
New Zealand, India and Thailand have announced interest rate cuts in response to the depreciation of the renminbi. At the same time, the bond market is also expressing the biggest concern for investors: the 10-year US Treasury yield is now almost below the 3-month US Treasury yield, which is ominously close to the “reverse yield curve”. Traditionally, the reverse yield curve heralds a sharp decline in the upcoming recession and the Federal Reserve's monetary policy.
This low interest rate environment is eroding bank costs. This is why UBS now charges deposit fees to large depositors – a negative interest rate policy has angered depositors.
The most terrible scene here is not the revolt of large depositors, nor the recurrence of market turmoil during the 1997-1998 Asian financial crisis, nor the more extreme losses from 2008 to 2009.
The problem is that if the United States intends to provoke a war of exchange, then the war will be more like the 1930s.
At that time, the end of the gold standard and the introduction of the US Smoot-Hawley tariff law jointly stimulated the global currency depreciation cycle, thereby extending and expanding the Great Depression. The ensuing international tensions fueled the war of the Second World War.
Of course, it is not the 1930s. We have a more global economy and we have the Internet. Economists and political scientists often believe that this greater interconnectivity will force people, businesses and politicians to resist conflicts, whether they are economic or other.
But we now also know that interoperability (at least in the current "Web 2.0") format has caused great damage to a political system that supported globalization and supported free trade policies.
The data mining algorithms concentrated in Google and Facebook have created a group of KOLs that are addictive to dopamine. These KOLs, along with false information robots and "fake news," have weakened the influence of mainstream media.
"Buy Bitcoin" perspective
In the 1930s, people worried that currency depreciation, ethnic conflicts or war would undermine their well-being, and now they often use gold as a safe haven. Gold represents an ancient, widely recognized means of value storage, and its property, including its supply, is unaffected by the turbulent international environment.
But now, a person looking to hedge against such threats has a digital alternative, a replacement for the Internet age, an important bastion against centralization mechanisms such as banks and large Internet companies.
Another option is Bitcoin, whose digital attributes are similar to those of "hard currency" such as gold: hard to mine, representing scarce, alternative, and negotiable. Even better, as Bitcoin bulls like to point out, bitcoin supply is about to halve, which will make Bitcoin's circulation rate higher than gold. (However, I don't think this is the reason for buying now, for its part).
Why is bitcoin rather than a more recent, technically more advanced altcoin?
Because, like gold, as a safe haven, it has more than silver. Bitcoin has the largest group of believers to date, and they believe Bitcoin has the ability to protect the holder's wealth from political infringement. It is this common belief that gives Bitcoin a powerful force, and those who mistakenly believe that the forks undermine the digital scarcity of Bitcoin know little about this.
This is the reason for the current “buy bitcoin”: no matter what your beliefs are, there are enough people now believe that bitcoin is the best way to hedge the political and economic turmoil in the global financial system.
After the release of the money market news on Monday, it is easy to say that this mentality has helped push up the price of Bitcoin. But it has been difficult to link the daily movements of Bitcoin with the real world.
More importantly, Bitcoin is not under pressure from other assets in recent months, that is, the global financial market panic first triggers a sell-off, and Bitcoin will show its better hedging properties. Perhaps, many of the novice speculators in 2017 have left, leaving the market in the hands of more stubborn, more trustworthy "holders."
However, if you think that the road from here is straight up, it would be too stupid. A major risk to this view is that regulators may generate more stringent regulatory measures to enter what Nic Carter calls “full regulation”.
The idea is that, seeing the outflow of investment caused by financial turmoil, governments will worry that Bitcoin will lead to capital flight, so they seek to ban Bitcoin, or at least impose restrictions on exchanges, making it difficult to use the up and down ramp.
Of course, the global regulatory rebound cannot kill the “money candied” that resists censorship. In the long run, such a situation does provide a strong reason for possessing it.
But for now, the best prediction is that market volatility will continue.
This article is translated and edited by the currency 哩news.
Author: Michael J. Casey, Chairman CoinDesk block Chain Research Advisory Committee and the Massachusetts Institute of Technology plans to senior adviser digital currency.