After a lapse of 106 days, Bitcoin regained US $ 10,000 and became a hot search again. This allowed the community that had been occupied by social topics for a long time to refocus on various projects in the industry. Because, in most ideas, $ 10,000 is at least a signal that tells us that the bull market seems to be coming.
At this point in time, it is not very timely to propose the death spiral of Bitcoin.
The death spiral, simply defined, is trampled. In interlocking systems, one link fails, leading to the next, until the entire system fails.
We have been exposed to the worst financial stampede in traditional industries, and one of the main reasons for Bitcoin's emergence is the subprime crisis. On the basis of the real estate boom in the United States, almost no one believed that house prices would fall, leading banks at that time to provide mortgages to people who were generally unable to obtain a mortgage on credit so that they could buy a house because the financial industry believed that house prices would not fall.
However, housing prices suddenly fell, and those who had low credit loan buyers could not repay at all. The house was forced to be recovered by the bank, and then the bank had to deal with the assets in exchange for funds, which again caused the housing prices to fall and trample.
In the field of cryptocurrencies, this word often appears in topics related to Defi, such as Synthetix, which has recently become a big fire in the ecosystem on Ethereum. The feature is that users can over-stake SNX tokens to synthesize various on-chain assets. Assets are not limited to the cryptocurrency industry. It is also applicable to synthesize traditional assets such as gold and stocks. And all this is based on the premise that SNX prices are stable or rising. If the SNX price plummets, resulting in a decline in the size of synthetic assets, the user's excess mortgage rate is close to the bottom limit, which will cause the user's closeout and transaction volume to slump, which will lead to the price slump and form a death spiral.
Therefore, the elements that form the death spiral are: token price, borrowing, and leverage. These factors all exist in the Bitcoin ecosystem.
Looking back at the computing power of Bitcoin's entire network, the obvious trend is to rise. Even at the end of 2018, the price of Bitcoin was as low as 3,000 U.S. dollars, and the computing power of the entire network was far greater than that at January 2018, compared to the highest point at the time , The computing power has only dropped by about 30%.
We know that there was no high-power mining machine in the mining machine market at that time. The most stable mining machine recognized on the market is Bitmain's S9. This model is even in use now. Therefore, in theory, S9 has reached the shutdown coin price (according to the data of Yuchi on November 25, 2018), and the shutdown of the Bitmain mining machine, which has 70% of the market share, will cause the computing power to plummet. But the result is not that the computing power only continued to decline for a short time, and then rose again to reach a new high.
Of course, there are many factors in the absence of a huge drop in computing power. Maybe electricity in some places is cheaper so that miners may not turn off the miners temporarily, and it is also possible that miners are borrowing money to mine.
Cryptocurrency lending services are very abundant at home and abroad. For example, Genesis Global Capital, one of several major lending platforms in the United States, belongs to Digital Currency Group, a well-known investment institution, and has provided users with cryptocurrency lending since April 2018. Data show that at the end of 2018, Genesis released a total of 1.1 billion US dollars of loans. In the fourth quarter of 2019 alone, Genesis released $ 1 billion in loans, and the total amount of loans has reached $ 3.1 billion.
The first person to contact the borrower was the miner. The original profit of the miners was to sell the bitcoin they had dug, pay the electricity and rent, and after deducting the cost of the miner, the rest was their own income. However, if miners do not want to buy coins because they are optimistic about Bitcoin, they will choose to borrow money, mortgage the bitcoin they have dug, and exchange some cash in accordance with the rules of the platform.
The borrowed cash can have two parts. One is to pay electricity bills. This can be seen as a conservative approach. These miners only earn β income from price increases; the other is to use the borrowed cash. Invest in the mining machine again, expand the scale of your own mining machine, mine more bitcoins, and mortgage more bitcoins. These miners are not only optimistic about future beta returns, they are also earning alpha returns more aggressively, and their leverage is constantly increasing.
Mining can be regarded as the primary market for bitcoin. Miners have added leverage to the primary market, so C-end users in the secondary market can also increase leverage.
Just like using China Merchants Bank and borrowing money to borrow money, the trading platform also has a lending service for C-end users. Based on the expectation that bitcoin will rise in the bull market, borrowing money and speculation will naturally become a highly capital-efficient operation. The secondary market is taking shape again.
Of course, in the case that Bitcoin can rise, everything is logical. The price rises, attracting the secondary market to buy coins. The primary market reaches the psychological price and takes out the mortgaged bitcoin for sale. The products of the mining machine company sell better, and no one loses money.
However, once Bitcoin has plummeted, it is difficult to escape the primary and secondary markets supported by leverage. Continued mortgage borrowing requires more bitcoin, and the excess mortgage rate is close to the bottom limit. When the borrower cannot support it, the borrower has to choose to sell, which will cause the price to fall further, and stampede.
Ethereum has experienced a short-term nearly 20% plunge. At that time, many users mortgaged ETH on the Defi platform MakerDAO to obtain stable currency DAI to pay for living expenses. When the plunge occurred, they had to mortgage more ETH to maintain, Otherwise, we can only sell ETH. Fortunately, the price of Ethereum has not continued to decline.
It seems that the price of bitcoin does not seem to drop sharply. BitMEX CEO Arthur Hayes recently sighed on Twitter: "Open interest has reached a new high, bitcoin contract transaction volume has reached a new high, and perpetual contract rates have reached a new high "These data look like the market is very strong now, a lot of funds are waiting for the rise of Bitcoin, and everything is going according to the plan of the coming of the bull market.
However, the risk of leverage is not nonexistent. BlockBeats once said in "What would Soros do if he wanted to destroy Bitcoin? " This scenario is described in the article. Soros have shorted bitcoin in the same way as short-term Thai baht and Hong Kong dollar in combination with hot money, trading platforms, and policy parties. The premise of his success is that the overall debt ratio of the bitcoin market has reached 70% and leverage has become Common tools for everyone.
BlockBeats does not think that it is not a bull market now, because all data and signals now represent that the bull market has arrived, and the probability of bitcoin price will rise as expected, leverage is a tool that quickly improves capital efficiency. This rise will be a key factor.
But we want to remind everyone that, looking back at the history of the subprime crisis, leverage is also a catalyst for accelerating market decline. Once bitcoin plunges, the borrower will be anxious to liquidate the collateralized bitcoin in the market, causing the price to fall further, and the bitcoin secondary market and the primary market will be disordered. No one is going to leverage, so Bit's market shuffles, and I dare not imagine.