Focus Analysis | Digital currency goes out of the cold ahead, but this is not necessarily good news

Risk aversion has pushed digital currencies to accelerate into the upside.

After entering May, the price increase of Bitcoin and other encrypted digital currencies is impressive.

Bitcoin exchange Coindesk data shows that from May 1 to May 30, the price of bitcoin rose by 65%, the second-ranked Ethereum and the third-ranked Litecoin rose by 68% and 56% respectively. .

In fact, the rise in digital cryptocurrencies, including Bitcoin, has begun since the beginning of the year. The global cryptocurrency market value has risen from $125.7 billion at the beginning of the year to the current $280.3 billion. Among them, Bitcoin, the world's largest digital currency, has a market capitalization of $154.9 billion.

Since the beginning of this year, the global digital currency market value has more than doubled. Source: Coinmarketcap

This wave of rising prices is generally considered by digital currency investors, the "digital currency winter" that began in early 2018 has passed.

The bitcoin-based digital currency once went through a crazy rise in 2017. Bitcoin prices were as high as $20,000, creating an asset bubble. The bubble burst and the price of Bitcoin has been declining throughout 2018. By the beginning of 2019, bitcoin prices had fallen to around $3,100.

Digital currency has become a safe-haven asset tool, which is one of the reasons for this round of rising prices. But this rise is not necessarily a good thing. “Hedging” may mean that the global economy is in turmoil, and investors' asset preservation and appreciation are in trouble; on the other hand, the risk of digital currency itself is relatively large, and it may bring more investors after becoming a hedging tool. risk.

Inevitable and accidental price increase

Scarcity is the inevitable cause of the price increase of all items.

In 2009, the mysterious Nakamoto founded Bitcoin, setting the number to 21 million. After the miners use the mining machine to calculate the “dig out” block, they will receive a certain amount of bitcoin reward. Over the past 10 years, thousands of mining machines have been in operation, with a total of more than 17.71 million bitcoin rewards.

The number of rewards is not permanent. According to Nakamoto's prior setting, about 210,000 blocks were dug up, and the amount of bitcoin rewarded for miners was halved. In 2013 and 2017, the number of Bitcoin awards has been halved twice. The next halving is expected to arrive in 2021.

That is to say, not only the number of tradable Bitcoins in the future will be small, but also the speed of being "digged out" will be slowed down. As a result, the transaction price of Bitcoin also appeared with the halving of the number of awards, and attracted a large amount of funds to enter.

Historically, bitcoin prices have risen sharply for the first time in 2013. In September of that year, the price of bitcoin soared from more than 100 US dollars to nearly 1,000 US dollars. In the following two years, the price squatted, and it did not enter the upward trajectory until 2016. The second sharp rise occurred in 2017, when bitcoin prices rose to nearly $20,000 at the end of the year, and then prices fell again in 2018.

"This bitcoin price has risen again, and there are inevitable factors. This is the cyclicality of its price." Zhang Xiaochen, founder of a digital currency and blockchain research website, told 36.

But scarcity is not always the whole reason for the rise in digital currencies.

Investment analysts generally predict that the next round of bitcoin prices will come between 2020 and 2023. For example, the research institute chain got the forecast at the end of 2018 that the down cycle of this round of digital currency will continue until May 2020. This round of increase in the spring of 2019 is a bit surprising.

Part of the reason is that the price of Bitcoin has been on the uptrend channel before May. Between January and April, bitcoin prices rose by 37.6%, providing investors with the expected space.

More important reasons, such as CNBC’s report in May 30, said that the unexpected trade escalation of trade friction between major powers and the rapid depreciation of the renminbi in May’s short-term has turned the choice of safe-haven funds into investment. Bitcoin and other digital currencies.

Zhang Xiaochen believes that these external and contingent factors have brought digital currency prices into a fast-rising track.

New hedging tools?

These accidental factors that drive the rapid rise of this round of digital currencies are not good news for the global economic environment.

Trade frictions may lead to a sharp slowdown in global economic growth in 2019. On May 22, the OECD announced a second cut in its forecast for global economic growth this year to 3.2%. The earliest expectation was 3.5%.

In the past month, US stocks Dow Jones, S&P and Nasdaq fell 5.5%, 5.6% and 6.6%, respectively, due to various factors such as trade friction. But the price of gold, often used as a traditional safe haven, has barely changed. This is because the Fed has no interest rate cuts, the US dollar has not produced inflation expectations, and the value-preserving function of gold has not been realized.

The decline in the stock market still makes the market risk aversion increase. In the case of variables, what investment tools are chosen to ensure asset preservation and appreciation?

"If the demand for the protection of the mainstream economy cannot be met by the mainstream economy, there will be a deep demand for the preservation of assets through digital currency," Zhang Xiaochen said.

The decentralization of digital currency has freed it from the legal currency issuance system dominated by the central bank. It is not affected by the issuance of legal currency and exchange rate changes. In theory, there is no inflation, exchange rate loss, and low transaction costs, which can quickly cross-border transactions. Applicable to safe haven assets.

Therefore, in various media, there was a saying that “the central bank 屯 gold, rivers and lakes bitcoin”.

The New York Times mentioned the experience of a Venezuelan Bitcoin user in a February report that could be used as a reference. In the case of Venezuelan legal currency Bolivar depreciating 3.5% every day, the person regularly sells his own bitcoin through the bitcoin exchange in the United States in exchange for the necessary Bolivar to maintain his life. The entire transaction process lasts approximately 10 minutes. If you are holding gold, the process of redeeming Bolivar is both cumbersome and unsafe, and you have to pay a fee.

Most of the investors in digital currency may not be able to maintain their basic life. But as a hedge investment option, the role of digital currency is roughly the same as gold, but digital currency trading is more convenient and transaction costs are lower.

In a recent report, Forbes magazine said that a Bitcoin trading center near the Haymarket in London recently had a customer who wanted to buy 25% of the world's bitcoin from the center – about $38 billion.

Although the trading center is unlikely to provide so much bitcoin for trading, the strong buying demand will naturally push up the price of Bitcoin.

New change, old risk

The rise in the price of digital currencies has another dangerous meaning for its investors: the numbers themselves are risky and their risks are difficult to predict.

Most digital currencies do not anchor assets such as fiatility or gold. After removing the cost of “mining”, the price depends mainly on the number of transactions, the frequency and the amount of funds entering the market. Due to the lack of supervision, it is not uncommon for exchanges to violate the rules and the currency operators to manipulate the price. This has caused its prices to rise and fall frequently. As of this writing, the price of Bitcoin has fallen from $8,736 24 hours ago to $8,308, a drop of 4.9%. This decline is not far from the one-month drop in the US stock index.

Secondly, the exchange of digital currency and the security of the wallet itself are worrying. Japan’s bitcoin exchange Mt. Gox was hacked in 2014 and was stolen from the equivalent of $450 million in bitcoin, directly into Bitcoin for a bear market of at least two years. Since its birth, about 3 million to 4 million bitcoins have not entered circulation because of theft, lost keys, or other reasons. The sheer number is too large, which brings uncertainty to the pricing of bitcoin transactions.

Zhang Xiaochen believes: "In addition to security and increase, the biggest risk to digital currency is policy and legal risk." The regulatory policies for digital currencies in various countries and regions are still in the process of change. The US Securities and Exchange Commission (SEC) has postponed voting for several digital currency-based exchange-traded funds (ETFs) from 2018 to the present, which has limited the development of digital currency derivatives trading.

More importantly, with the evolution and change of digital currency attributes, regulatory policies in many countries will change. This is another big uncertainty.

"If you just want to diversify your assets, you might want to hold a little bit of digital currency," David Yermack, an economist at New York University who studies digital currency, told the media in 2017. He then added: "If you don't understand it, it's not safe."

Perhaps this is the value of digital currency as a hedging tool: risk control needs to be diversified, and digital currency is one of the choices, but it is neither an inevitable choice nor a full choice.

Original article, author: Wu Mengqi

Source: 36氪