Under the trade war, is Bitcoin really one of the weapons of risk aversion?

Core Abstract: Some scholars believe that China can use gold, rare earth, bitcoin, etc. to defend the renminbi. Bitcoin does have certain hedging value at present, which is reflected in its credit endorsement mechanism, liquidity and the role of payment instruments. In the context of today's trade wars, Bitcoin may have a place to play and show an upward trend, but be wary of Tether's indirect or direct manipulation of the price movement of Bitcoin by manipulating the USDT, and also need to pay close attention to the US bitcoin. Attitude.

As bitcoin prices continue to fluctuate and the bull market for crypto assets is looming, the market's discussion on the reasons for the strong rise in bitcoin prices is endless. One of the main reasons for more and more investors to attribute the rise is to the background of trade warfare. The value of Bitcoin as a safe-haven asset.

Let's calmly think when the market is frenic. In the context of trade wars, is Bitcoin really one of the secret weapons of risk aversion?

Traditional safe-haven assets – gold

In the first and second world wars, gold played a dual role as a payment medium for hard currency and strategic materials, making people clearly aware of the value of their safe-haven assets.

In 1944, more than 700 representatives from 44 countries around the world arrived in Bretton Woods in July. Since the Second World War caused the total amount of gold owned by the United States to account for more than 75% of the total official gold reserves of the world at that time, the final discussion of the meeting was that the US dollar was linked to gold, and the currencies of other countries were pegged to the US dollar. system.

Although the United States had rich gold reserves after World War II, it was later opened in the Korean War. In the 1960s, the United States was deeply mired in the quagmire of the Vietnam War. The war has caused the US's international income to deteriorate, and the credibility of the US dollar has been hit. Countries have sold their own dollars and snapped up gold, causing a sharp drop in US gold reserves.

One of the signs of the Bretton Woods system is the “shadow market” in gold, which is parallel to the US-led open market, but the price of gold is much higher, which reflects the strong demand for gold.

Although the United States has taken many measures to maintain the Bretton Woods system, with the expansion of the Vietnam War, the balance of payments has further deteriorated, and the US dollar crisis has re-emerged. In 1967, France announced its withdrawal from the General Bank. In December 1971, it was "Smithson". The agreement is a sign that the dollar has depreciated against gold, and the Fed refused to sell gold to foreign central banks. So far, the system linked to the dollar and gold has survived.

However, the collapse of the Bretton Woods system not only did not threaten the status of gold's safe-haven assets, but also led to the rocket-style rise of gold prices. Until today, gold still plays an irreplaceable role as the most important safe-haven asset in the world financial market.

Digital gold – bitcoin

As a pioneer in the era of encryption assets, Bitcoin has opened up a new era of blockchain industry and encryption assets. It is recognized by IT practitioners, blockchain enthusiasts, and some high-net-worth individuals as the value of gold in the field of encryption assets.

In terms of market capitalization, as of May 22, 2019, Bitcoin still leads the other encryption assets with a market value of over $140 billion, which is 5.2 times that of the second Ethereum ETH.

In terms of trading volume, as of May 22, 2019, Bitcoin's average daily trading volume exceeded $25 billion, which was higher than the second USDT's trading volume of $3.5 billion.

From the perspective of trustworthy asset support, Bitcoin is a small number of cryptographic assets that are considered to be supported as underlying infrastructure in addition to stable currencies. As of 10:12 on May 23, 2019, Bitcoin's total network computing power was 9.582EH/s, and the average daily revenue per mining machine was ¥2.03/TH.

From the perspective of payment circulation, Bitcoin is a payment method that is accepted and widely recognized by a small number of investors in the world except for stable currency. There are currently about 30 million people holding Bitcoin worldwide.

Bitcoin has a certain value of credit

The safe-haven value of Bitcoin is reflected in its special credit endorsement mechanism, good liquidity and the role of payment instruments.

Bitcoin is not issued by the government, and it lacks a physical form. Therefore, it is different from the legal endorsement system of legal currency and physical gold. But Bitcoin's credit endorsement mechanism is reflected in its mining mechanism. Bitcoin adopts the SHA256 algorithm designed by the US National Security Agency, which is a kind of “hash function”. Once the corresponding block is generated by these algorithms, it is extremely difficult to obtain the corresponding data by inverse estimation. The cost will far exceed the corresponding mining cost, which guarantees the uniqueness of each bitcoin.

On the other hand, the average daily trading volume of Bitcoin has been stable at more than 10 billion US dollars, and even exceeded 20 billion US dollars in May this year. Such trading volume may not be worth mentioning compared with the traditional stock market, but Under the premise that the bitcoin-based holding group has only 30 million people, the liquidity of Bitcoin is very benign.

Finally, I believe that bitcoin payment is not a new topic, not just encryption-related companies. In May of this year, traditional chain brands such as Starbucks, Nordstrom (American high-end chain stores) and Whole Foods (Amazon chain stores) also began. Accept bitcoin payments.

Especially in today's trade war background, the risk of depreciation of legal currency assets has soared. Once the traditional financial sector is blocked, some legal coins are difficult to use in the international payment field. At this time, safe-haven assets will play an extremely important role.

Possible counter measures by the US government

Some experts and scholars have written that Bitcoin can be used by the state as one of the secret weapons of checks and balances under the current trade war. Can we think about this, will the US government level take corresponding countermeasures?

Here we do not discuss whether the US government will take countermeasures, but focus on the countermeasures and means that the US government may take, including but not limited to:

1. Declare the illegality of Bitcoin investment:

On the one hand, according to the US SEC v. Shavers case, Bitcoin investment is considered to meet the requirements of the first component of the Howey Test and is a form of money investment. This recognition plays an important role in the supervision of tokenization of tokens, making the investment transactions of tokens into the scope of supervision of US securities laws.

On the other hand, even if the US regulatory level adopts the corresponding control measures for the investment of Bitcoin in a one-size-fits-all manner, based on the jurisdictional restrictions, these determinations can only limit the investment behavior of US residents and the foreign residents in the United States. The investment behavior cannot affect the bitcoin investment of Chinese investors outside the United States.

2. Close the US Bitcoin-related exchanges

Due to the severity of US regulatory policies, some head-encrypted asset exchanges have not been established in the United States, which makes the jurisdiction of the United States 2 unable to reach the location of the head-encrypted asset exchange. However, it should be noted that although the global consensus of Bitcoin is very strong and the value is adequately supported, if the United States announces certain measures for Bitcoin, the short-term will inevitably have a very big impact on the value of Bitcoin. . It can be compared with the "Notice on Preventing the Risk of Subsidy Issuance Financing" issued by the seven ministries and commissions of the People's Bank of China on September 4, 2017. At that time, after the introduction of the relevant policies of the central bank, Bitcoin immediately unilaterally fell, and then was quickly pulled up five times, mainly the purchasing power of Japan, South Korea and the United States.

Worried about the possibility of Tether manipulating Bitcoin

What needs to be guarded is that there is another voice in the crypto-asset industry. According to a press release dated April 25, 2019, the Office of the Attorney General of New York claimed that the crypto exchange Bitfinex lost $850 million and subsequently used Tether's funds to make up for the loss. Just as Bitfinex and Tether colluded to use the USDT reserve to cover up $850 million in losses, the news of Tether's issuance once again set off the market.

According to PeckShield Situational Awareness Platform data: At 0:32 on April 26, 2019, Tether added a USDT worth USD 100 million to the Ethereum network. Up to now, Tether has been in Ethereum for the fifth time in April. The ERC20 USDT is issued on the Internet, and the total circulation has reached 400,010,000. After a substantial increase in the number of shares this month, the market value of USDT rushed to the top of the $2.8 billion market, and the market value once broke the historical high. Therefore, many investors believe that this wave of bitcoin is caused by Tether's additional USDT.

In summary, it is not difficult to see that under the background of today's trade war, it is feasible to place Bitcoin as a safe-haven asset, and there is a high probability that it will outperform most other. monetary assets. But the biggest black swan event may be the uncertainty of US policy. However, from the historical attitude of the US government toward technology, it is less likely to shut down the Bitcoin exchange.

Author: Chu Kang, Cindy

Source: Benn Capital BN Capital