Both rising and falling are obvious characteristics of the currency circle. What is this?
Stocks also often go up and down, especially A shares. The global economy sometimes goes up and down. However, the price direction of currency assets is very synchronized, much more synchronized than other assets.
This year (2020), the new crown virus interfered with the national economy. A shares seemed to be miserable together, but at least divided into sections, the pharmaceutical section rose. In the stock market, no matter what tragic events happen in the world, most stocks fall, but some stocks will rise. For example, even if there is a war, the wealth is sent out as cannon fodder in minutes, but the military stocks have to rise.
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From the stock market, it is clear that listed companies have different profit and cost logics in different sectors. When dealing with the same positives and negatives, the performance will generally be different. This is where diversity eliminates both ups and downs.
US stock companies are more diversified and less affected by policies, and A shares are basically subject to the same policy impact, so A shares will perform more and less.
The more diversified investors participate in the stock market, the weaker the same rise and fall. Like A shares, investors have shown the same speculative behavior, all chasing gains and losses. Therefore, A shares appear to rise and fall more.
In the currency circle, from the perspective of the operating costs and profits of the currency and the chain, there is basically no diversification, and they are almost the same.
Basically, all the current coins and chains have no profit source and no positive cash flow. The rise of the currency price is mainly due to more users and funds entering the market, rather than because the company sold more products.
The platform currency has a source of profit, and the user pays the commission. This is also the reason why in the big bear markets of 2018 and 19, platform currencies performed better than mainstream currencies.
But the exchange's revenue is related to the activity of the currency. This also makes the platform and the broader market rise and fall together. From the historical data, on the whole, each time the market rises and falls, the platform currency fluctuates with the broader market.
The public chain basically has no revenue and relies on new leek. The cost of the public chain is also mainly the salary of the project party and marketing conference fees. All public chains have additional issuing logic, PoW has mining output, and PoS also has super node mining. The output of mining is cost. Cost and revenue are both a model, and there is no essential difference. This caused everyone to go up and down.
Various tokens, too, have rarely seen a positive operating income. The cost is the same, wages and marketing costs.
Therefore, the current cost and revenue of various projects in the currency circle are basically similar, and they are all affected by the same market factors. This is the result of insufficient diversity.
From the perspective of investors, the diversification of the currency circle can only be more singular. Most people come to speculate. This is particularly evident in China.
Investors are mainly retail, and institutional investors are still immature. Institutional investors are actually similar to retail investors, because institutional LPs are dissatisfied with defending their rights.
Investors in the currency industry, looking at the same media, have similar sources of information, leading to various rumors. A message can reach the majority of speculators' mobile phones within 10 minutes, forming a huge price synchronization effect.
I feel that the entrepreneurs in the currency industry are also mainly speculative. Most of the entrepreneurs in the currency industry hold the largest share, but they also regard the market as a place to cut leek. In particular, entrepreneurs in various ecological niches do not earn much money themselves, and the main income is still from speculation. In the media, for example, the biggest source of income is advertising from project parties. Everyone is speculative, affected by market fluctuations are the same. Coins are naturally prone to rise and fall.
Investors and entrepreneurs are mainly one type. Affected by the same factors, lack of money and lack of money together, earning money and earning together, of course, will cause prices to rise and fall.
At present, the global governments' policies on currency are similar. The mainstream is not optimistic, nothing more than the degree. The pressure of policies on prices is highly consistent. As soon as the policy was suppressed, all currencies fell. As soon as the policy was applauded, all junk coins rose.
In short, the current situation of the currency circle is a serious lack of diversification, which is the main reason for the price of various currencies to rise and fall.
I think there are two other reasons, the difficulty of entering OTC funds, and linkage with leverage.
Almost all coins in the currency circle use BTC, USDT, and ETH as the base currency for exchanges. This has caused the liquidity of various coins to be linked to the three coins, BTC. To buy off-exchange funds into coins, you need to pass three coins: USDT, BTC, and ETH as entrances.
In particular, banks and governments do not support everyone to speculate in coins, which makes it difficult for OTC funds to come in. Buying a coin, the card will be blocked at every turn, annoying and annoying.
This leads to more funds in the currency circle forming an internally-operating fund pool, and relatively less connection with the outside world. The coins in the hands of investors are exchanged, not bought from outside the market. For most altcoins, when they fall, everyone wants to increase their positions. The most convenient way is to use USDT and BTC to increase their positions. The coins are exchanged in exchange.
In this way, the assets of the currency circle will be more likely to rise and fall, because everyone is a thing in the pool.
The currency circle is now mainly in the speculative stage, and the leverage is very large, and the levers are all related.
The leverage of the currency circle starts to accumulate from the time of mining. Miners borrow money to buy mining machines. When the price is low, the coins that are mined are not willing to sell, but they borrow money to pay the electricity bill. When the price is high, the same hedging behavior is performed. The speculators also took the coins as collateral for more USDT to increase their positions. Take the currency for futures as margin. Once the leverage reaches the liquidation point, when there is no cash, most people will exchange the other coins in their hands for the margin currency in order to maintain the position. This is leverage linkage.
For example, an investor holding BTC and BCH at the same time, opened a long position in BTC, and when the position fell, the position was almost liquidated, and there was no BTC to cover the margin, so he had to sell BCH to BTC to cover it. This caused BCH to fall as well.
Leverage linkage has also exacerbated the rise and fall of various currencies in the currency circle.
One day, the currency circle is more diversified, the capital pool has live water, and the leverage is not related, and the price volatility will be different.
Author: Huang Shiliang
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