Observation | Bitcoin is borderless, but pricing power is borderless

With the rise of populism and protectionism, blockchain and digital currency technologies have gradually become important strategic tools for the game between big powers.

And what role will Bitcoin play in the future national game?

The optimist will say that it will become the cornerstone of the anchoring of the value of the fiat currency in the future, while the pessimist thinks that it is useless except speculation. Even if it is only positioned for goods, it does not bypass the issue of pricing power.

Professor Susan Strange, one of the founders of international political economics, put forward the concept of structural rights in The State and the Market. She believes that there are two types of rights in the international community: connected power and structural power.

The former can be understood as the use of a knife to force others to do things that they do not want to do, while the latter can be understood as the power side has formulated certain global standards, and through the standard "convinced people" to let the other party "consciously" do the power The interests of the parties.

Professor Susan thinks that structural power is more important. After all, nothing can be solved by force. It is the best policy to defeat the enemy without fighting.

She further divided structural power into four structures: production structure, security structure, financial structure, and knowledge structure.

From this point of view, whoever has the structural power can control the pricing power of Bitcoin. Therefore, although Bitcoin has no borders, its pricing power has borders.

Today we use this framework to see in whose hands Bitcoin's structural power lies.

Production structure: Production structure studies production relations, that is, who decides what to produce? How is it produced? For whom? What is the method of production and the conditions under which it is produced?

First look at who is the supplier from the perspective of Bitcoin?

From a price perspective, the supply side is divided into two categories, the supply side of new chips and the supply side of existing chips.

The supplier of the newly added bitcoin is the major miners, and the supplier of the existing chips is the holder of the current bitcoin, commonly known as Hodler. As more and more bitcoins are mined, the former's impact on the price of bitcoin gradually weakens, while the latter's impact gradually increases.


Bitcoin inflation graph over time

Let's first look at the incremental supply part. As shown in the above figure, the inflation rate of Bitcoin is currently about 18 million, and the inflation rate is about 4%. After halving next year, the inflation rate will be as low as 1.8% . Before halving in 2016, inflation was as high as 8%.

This means that in the early days, if miners could form some kind of tacit understanding, collective coin hoarding or selling, they could easily affect the price of Bitcoin. And now, even though China ’s computing power still occupies a large proportion (According to a recent report on computing power by thenextweb, China has won 2/3 of the computing power, and 54% of the computing power is in Sichuan). In addition to ensuring the security of the Bitcoin network, The impact on the price of Bitcoin has been getting lower and lower.

Simply estimate the ceiling of the bitcoin mining market. The remaining bitcoins of less than 3 million are to be mined. Assuming that the price of bitcoin remains at $ 7,500, the total value of the remaining bitcoins to be mined is about $ 22.5 billion. Among them, assuming that the average electricity cost accounts for 50%, the ceiling of the Bitcoin mining market is about 11.25 billion US dollars.

As a typical company that sells shovel, Jia Nan Technology was valued at US $ 1.4 billion when it was listed, and it has now fallen to US $ 750 million. And the industry leader Bitmainland, according to a news report in the middle of this year, its valuation from $ 15 billion "knee cut" to $ 5 billion.

Even so, the industry boss and second child of the "shovel" company have reached 5.75 billion US dollars. It is said that selling shovel makes money, but when the shovel scale has reached 50% of the gold scale, it will be a big question mark whether the model is sustainable. The main contradiction is not whether we can create a "better shovel". The main contradiction is that "gold" has to increase its price.

This is like the most difficult year for the postgraduate entrance examination in the history of recent news reports. Everyone knows the L-shaped bottom, and future employment will be more severe (Bitcoin halved). Therefore, I chose to take the collective postgraduate entrance examination. This year, the number of postgraduate candidates broke a new high to 3.4 million. Doubled (the computing power continues to increase), resulting in a much more difficult exam this year (increasing the difficulty of mining), and the training institutions are still saying that the problem is not big, we will also launch more advanced training courses for X, and we will also launch a test that does not include a package Return marketing methods, come to our training (new mining machine).

Let's take a look at the supply side of the stock chips, HODLER, or HODLER, who is near the front of the battlefield. In fact, we can know from the price trend after the stolen Plustoken.

Leaving aside the short-term factors of the theft of hackers, the market price rises too fast and the bitcoin stock in the wallet is realized on the exchange, which is the main reason for the price drop.

This trend can be clearly seen from the MVRV model and HODL Waves:



The above two graphs show that the wallet funds flowed into the market to cash out when the price of Bitcoin was high.

Talking about the demand side, it can be roughly divided into two categories: payment demand (cross-border, anonymous gray market, etc.) and value storage demand (HODLER)

For payment-type cross-border settlement needs, short-term Bitcoin still has advantages. In the long run, it can be replaced by various stable currencies and legal digital currencies.

The payment-type gray anonymous demand can actually estimate the general scale of demand in the price area at the bottom of 2015, which is not enough to support higher market value. Moreover, in terms of anonymity, new types of anonymous coins are emerging in an endless stream, and they can also shoulder this responsibility.

The value storage requirement part is the key requirement to support the continuous strength of Bitcoin, commonly known as faith. Although there are different opinions on faith, the general logic is that Bitcoin will assume a part of the role of gold as a neutral third-party asset under the large cycle of negative interest rates.

For the above demand, there are different models, such as the NVT model (for payment) and the S2F model (for value storage), to make quantitative judgments, so as to guide the demand side to continue to do HODLER or defect to the supply side in the short term.

In general, in terms of production structure, Bitcoin is much simpler than commodities. In the short term, it is a game at the chip level, in which the marginal supply of miners gradually weakens and is affected by the combined force of the security structure, financial structure, and knowledge structure. In the long run, it is the confirmation or falsification of beliefs that is most affected by the structure of knowledge.

Security structure: The security structure in international political economy refers to "a framework of power that is formed by some people providing security for others." Those who provide security protection naturally get certain privileges.

For example, during the oil transportation process, the Strait of Hormuz is a must-go place for entering and exiting the Persian Gulf. Iran blocked the Strait of Hormuz, and it has the space to wander in the Persian Gulf region and confrontation between the United States and Iran. Chips.

Although Bitcoin is designed to be decentralized and does not require permission, it is also subject to a certain security structure in the process of gradually integrating into the mainstream. Its security structure mainly comes from the following two aspects:

The first is the safety guarantee of mining production.

Although the mining machine's computing power is distributed, after many years of development, the mine has become a capital-intensive industry. Therefore, in addition to low electricity prices, it is essential for the mine to provide you with a long-term stable, reliable, and safe operating environment.

Many Chinese miners are still discouraged by the temptation of Iran's low electricity prices, which is precisely why.

Second, compliance protection for fiat currency exchange channels and transactions.

The free and safe exchange between bitcoin and fiat currency, and being recognized and protected by the law of fiat currency world, is a necessary condition for it to gain more recognition now. Which country is more open in this regard, it will be easier to exercise supervision in the name of openness, thereby gaining a power advantage in a secure structure.

Although China no longer strictly bans mines, superimposes its market share of computing power, and barely counts half the advantage, its attitude towards exchange and trading channels will be suppressed in the foreseeable future, and Europe and the United States will be significantly more in this regard. Open and inclusive, various regulations and tax regulations have been introduced for legalization.

In short, this will have a profound impact on Bitcoin production, pricing venues, and the main body of pricing in the long run.

Financial structure: The financial structure is "the sum of the various arrangements that govern the availability of credit and all the factors that determine the terms of exchange between currencies of various countries."

The influence of financial capital on bitcoin pricing power can also be divided into two aspects, capital and market tools.

From the perspective of industrial capital, the upstream mining companies are dominated by Chinese shareholders. The management of Canaan Technology holds 50.8% of the shares. Bitmain Zhanke Tuan and Wu Jihan hold a total of 83.9% based on public information.

But as the production structure says, the impact of current and future minerals on the security of the Bitcoin network is greater than the impact on pricing.

At the exchange level, the most influential Coinbase has diverse shareholders, including well-known investors Union Square Ventures and Andreessen Horowitz, as well as large institutions such as the New York Stock Exchange and financial services group company USAA, and Japan's Mitsubishi Tokyo UFJ Bank and Japan Telecom NTT DoCoMo.


Bitmex, the largest futures exchange, is not very transparent, but from Cruchbase's information, its early investors were SOSV, Chinaccelerator, G and M Capone Trust.


The three major currency exchanges are Chinese or Chinese, and the transaction volume can top half the sky, but the currency transaction is directly subject to the stable currency, and the relationship between the legal currency is accepted, which makes it naturally passive in terms of pricing power. The several thunderstorms of USDT have put the currency trading pair in a haze of concern, and the volume and influence do not match.

In addition, the exchanges take themselves as the center of the circle, radiating upstream and downstream to carry out industrial layout, such as wallet custody, asset management, compliance, legal currency OTC, incubator and so on.

From the perspective of market tools, eradicating the experience of previous commodities, and having a mature and mature futures market, can better perform the value discovery function and hedging function of the commodity, and the futures market is generally accepted as a commodity price by countries around the world. The price of the futures market has also become the main basis for setting commodity prices.

In Bitcoin, the United States naturally did not miss the opportunity to seize the high ground.

In 2017, CME launched a Bitcoin futures contract for cash delivery; BAKKT, a compliant exchange for physical delivery launched in September 2019, is even more aggressive. Since its launch, BAKKT's futures contract trading volume has hit record highs since its launch. On December 18, it hit a record high of 6162 BTC. And monthly option contracts have been launched on December 9.

In addition, the mainstream futures exchanges represented by Bitmex use the three dollar exchanges of Coinbase, Kraken, and Bitstamp as the pricing of the Bitcoin futures anchor index, and control the interpretation of the index.

From this point of view, the US dollar has an absolute advantage over Bitcoin in the financial structure.


In general, in terms of Bitcoin's financial structure, Europe and the United States still have the structural power by virtue of their past experience in pricing power of commodities and their advantages in trading and pricing of derivatives. Although China controls the advantages of computing power and the advantages of currency exchanges, it is difficult to spend money upstream. The investor structure of currency exchanges is still speculative, and the volume and influence are not proportional.

Knowledge structure: "Contains beliefs (and the moral values ​​and standards derived from these beliefs), knowledge and understanding, and the channels through which beliefs, ideas, and knowledge are transmitted. Similar to Joseph Nye's proposal of soft power.

As a nascent alternative asset, Bitcoin does not yet have a recognized valuation model.

But carefully recall the valuation models we often mention, whether it is the NVT model (Willy Woo), the MVRV model (Murad Mahmudov & David Puell), and the recently popular S2F model (Plan B), a quantification index of scarcity. European and American KOLs or investment institutions first proposed and introduced to China.

Although these models are not always effective, under the positive feedback of certain market verifications, they will implicitly guide us in different markets, which indicators we should pay attention to, what algorithms we use, and what valuations we can use to guide our behavior. Perform a buy or sell operation.

Similar to "Inception" in "Stealing Dream Space", "subconscious" and "consciousness" will drive our behavior patterns.

And these "Western economics" are constantly implanting our consciousness, gaining power on the structure of knowledge, and turning it into real influence.

In addition, KOL Willy Woo, who focuses on the development of various indicator models, has 118,000 followers on Twitter, becoming an important entrance and distribution channel for these innovative model theories.



(Willy Woo and his indicators)

In terms of knowledge structure, we are more passively accepting and improving. Even if there is innovation, it is difficult to affect the global scope. To be practical, we still need to work hard.

Summary: Under the current Bitcoin production structure, the four structural forces are interrelated and inseparable. Bitcoin pricing power is a composite product of mutual forces. China's supply-side advantage in the production structure is continuously deteriorating, while Europe and the United States are in many aspects such as security structure (legal compliance system), financial structure (financial capital, market tools and theory), knowledge structure (valuation model), and communication channels Three-dimensional structural rights have been established, bitcoin's pricing power has been mastered, and it will be difficult to shake in the foreseeable future.

How should China respond?

When it comes to this issue, it needs to be divided into two sub-problems. One is whether it is necessary to snatch the right to bitcoin pricing, and the other is how to compete in the current situation.

Is it necessary to compete for the pricing power of Bitcoin? It is necessary, but not in a hurry, or in a hurry.

With the start of a new round of QE water release and negative interest rates in the world, debts are rising. The credit currency system is facing an unprecedented crisis, and countries are hoarding gold. Whether Bitcoin, a digitally scarce variety that already has value consensus, can one day become one of the value anchoring standards, it is still far away. However, it is not completely impossible. Whenever possible, it should also be necessary to compete for pricing power.

But after all, it is still far away and there are still many variables. The first-mover advantage may not be sustainable. And under the tide of countries competing to promote the digital currency digital system, Bitcoin pricing power is far from the main contradiction. In addition, according to the experience of SSE 50ETF futures, although the first-mover advantage of Singapore's FTSE A50 futures did not introduce the pricing power of the 50 index before the introduction, the research shows that 50ETF futures quickly recaptured from the FTSE A50. Pricing power. So even if you are late, you are not in a hurry.

Moreover, at the level of traditional commodities, China, as a large consumer demand country, has still not obtained pricing power for a long time. Recently, it has gradually gained the right to speak. It is unrealistic to compete with Western old money in this emerging field, so it is also unrealistic. Can't wait.

However, this does not prevent you from making some arrangements for future layouts, such as:

Compliance of related physical industries: For example, the Bitcoin mining tax mentioned earlier, although strictly prohibited in the Mainland, but open compliant exchanges and derivatives markets in open areas such as Hong Kong or Macau, leave aside and carry part of the investment Speculators.

In addition to the legal digital currency, a separate RMB stablecoin is reserved.

Financial trading proving ground: China is gradually liberalizing derivative markets such as options, and lacks practical experience. It can take advantage of the long trading time of 7 * 24 digital currencies to quickly accumulate trading experience and train its team.

At the level of knowledge structure, we must not only input ideas from the outside world but also actively export them.



Country and Market (Susan Strinch)

"Global Commodity Pricing Mechanism: Four Powers Control the Lifeblood of" Pricing Power "" (Xie Wei, Renhe Huang)

Bitcoin Market-Value-to-Realized-Value (MVRV) Ratio (Murad Mahmudov and David Puell)

"Introducing NVT Ratio (Bitcoin's PE Ratio), use it to detect bubbles" (Willy Woo)

Scarcity and Bitcoin Valuation (PlanB)

"Comparative Study of Shanghai and Shenzhen 300 Stock Index Futures and Xinhua FTSE China A50 Index Futures" (Wang Su, Sun Yan, Zhou Yue)