The author published a text at the beginning of this year to discuss the logic of the 2019 mainstream currency driving the market to pick up: 1. The global period of intensive regulation of the counter-cyclical adjustment – monetary easing policy; 2. The improvement of blockchain infrastructure, the admission of mainstream funds 3, the progress of the technical community and the halving cycle have come. Bitcoin prices have now exceeded $10,000. Whether Facebook's LIBRA makes Bitcoin soaring, or the FOMO configuration of institutional investors, if we continue to dig deeper into the logic behind the rise of Bitcoin, it can be summarized as Bitcoin as a non-sovereign asset, and today's influence is already Gold is the main tool for global credit hedging, which is the essential logic of bitcoin's rise. (See: Babbitt Column | Why do I say that the cryptocurrency will recover in 2019? )
Where is the comparative advantage of Bitcoin and gold?
Bitcoin has much in common with gold, such as scarcity, limited amount of bitcoin, and limited reserves of gold. Bitcoin, like gold, also has mining costs and has the cost of mining output. Because of its scarcity value, gold is easy to divide and fuse, and it is resistant to oxidation and storage. It has served as a general equivalent (currency) role in human history. Compared with physical gold, Bitcoin is easier to segment on the basis of the same scarcity. In theory, it can be infinitely divided; and Bitcoin is more electronic and portable. The various characteristics of Bitcoin are known as "digital gold."
"Gold and silver are not currencies, but the currency is naturally gold and silver."
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– Marx's "Capital" In the long process of evolution, human beings have continued from the shells and bones to the choice of gold and silver as a currency for thousands of years. From an economic point of view, the essential reason for gold to act as a currency is that the coinage tax is small. Therefore, ancient people who have been divided around the world have chosen gold as a currency. Although the current gold exits the currency circulation field, the value of gold is still recognized globally. Gold is still a symbol of wealth, an important reserve asset of central banks, and still acts as the “king of money”.
As a digital asset with similar properties to gold, Bitcoin does not lose gold, and is far superior to gold in terms of severability and transportation convenience. In the real world, we can't take a few golds like the ancients, but we can easily bring bitcoin to any place in the world where there is a network, and it is convenient to redeem and use for payment. Bitcoin is becoming more and more accepted globally, and will gradually become the same non-sovereign reserve asset as gold.
Gold is an excellent old-fashioned safe-haven asset
Gold not only has commodity attributes but also currency attributes. Gold has become a global credit hedging tool because it is the anchor of global value and is widely accepted around the world. In the financial market, gold, the US dollar, and US Treasury bonds are regarded as mainstream safe-haven assets. The US dollar is the world currency in the current legal currency field. The largest settlement currency in global trade is widely accepted around the world. On the basis of the widely accepted US dollar, US Treasury bonds have the solvency of US national sovereignty and developed financial and derivatives. The market provides trading depth and is also considered an excellent safe-haven asset.
But from the perspective of risk aversion, the safe-haven property of gold should be far superior to the US dollar or US Treasury bonds. Gold is an asset that transcends race, not only without political differences, but also across ethnic groups and can be circulated around the world. The US dollar has a risk of over-emphasis. In the long run, the US dollar has been depreciating, and US Treasury bonds are also insurmountable.
In 1989, a New York property developer called Semel placed a national debt clock (electronic display) on a wall in Manhattan, New York, recording the size of US Treasury bonds in real time. Since the Bush era, the US government has been unrestrained in the fiscal deficit plan. The US Treasury bonds have expanded rapidly. The electronic display card of the National Debt Clock has been exploding because of the insufficient number of digits. It cannot display the number of US Treasury bonds. It has undergone several transformations and expansions. In March 2019, US Treasury bonds hit a record high, exceeding $22 trillion.
The driving factor for the rise in gold prices is also the logic for the rise of Bitcoin
Historically, gold has had significant excess returns during the recession and depression. From the perspective of the economic cycle, gold is just at the opposite of economic growth and is a hedge against economic risks and global credit risks. During the economic recession, asset yields fell, corporate profitability deteriorated, risk aversion increased, and funds poured into safe-haven assets such as gold, US dollars, and US Treasury bonds. Market pessimism forced central banks to implement monetary easing policies and printed large amounts of money. At this stage, however, entrepreneurs are still worried about the economic outlook. The market is not sensitive to interest rates. No matter how much money the central bank increases, it will be saved and even vacated within the financial system, instead of investing and consuming. The scholar Keynes called "liquidity trapping." The economy has entered a recession from recession, and often at this time, gold will go out of a wave of independent market, global risk assets plummeted, and gold alone is excellent. The hedging function will be far from the safe-haven assets of sovereign countries such as US Treasury bonds.
There are indications in 2019 that we are already in a period of economic depression, and the global economy has entered a no-debt zone with high debt, high leverage and negative interest rates. What the future faces, we have never faced it and any historical experience to follow.
Faced with uncertainties in the future, central banks began to reduce their holdings of US Treasury bonds and increase their holdings of gold. All of the above are the essential reasons for the recent surge in gold. Bitcoin, as an asset similar to gold, has the same logic of rising. In the next one to two years, gold and bitcoin are expected to rise.
Gold price trend, source: tradingview
How can the Sino-US trade war help Bitcoin
The outbreak of the trade war is a sign that the global economy has entered the game stage of stocks. In the past half century, the world economy as a whole is in an incremental stage, the cake is big enough, everyone works for development and mutual benefit. Once the increment begins to stagnate, contradictions will erupt, trade protectionism will rise, and even local military conflicts.
Behind the Sino-US trade war is the long-standing trade imbalance between China and the United States. In the past, the relationship between China and the United States can be summarized as follows: China is responsible for manufacturing and exporting goods, and the United States is responsible for borrowing and spending. China relies on exports for US dollar foreign exchange to continue to invest in US Treasury bonds, and the US dollar has closed loops in current and capital projects. Until now, China is still the largest external holder of US Treasury bonds, holding nearly $1.2 trillion. Before the Sino-US trade war broke out, Sino-US relations were between you and me. I have you.
The trade war has escalated, the United States has curbed China’s technology companies, and China has threatened with rare earth weapons. However, rare earth is only one of the means of Chinese trade counter-measures. The biggest killer is the sale of US Treasury bonds. If the trade war continues to deteriorate, the massive sell-off of US Treasury bonds is a very likely counter-measure. If the trade war escalates into a financial war, the international monetary system will be in turmoil, the market will be uneasy, and the funds will be heavily funded with non-sovereign assets to hedge, even the neutral Swiss Swiss Swiss franc will be exposed. The more turbulent the monetary system and the bleak economic outlook, the better the chances of gold and bitcoin.
Since the Sino-US trade war has deteriorated, central banks in China, Japan, Germany, and Canada have been reducing their holdings of US Treasury bonds and increasing their holdings of gold. This is also the direct driving factor for the recent surge in gold. It is also the reason for the rise in Bitcoin, as more and more people realize that Bitcoin is an excellent safe-haven asset like gold.
The dollar system is a scam, and the Fed can easily harvest the world's wool as long as it starts the printing machine. In the long run, the government of any country will solve the debt problem by printing money. This is the same as the bear can't help but steal the honey pot. The US government is the same. The legal currency has been depreciated for a long time. Only non-sovereign assets such as gold and bitcoin will continue to rise.
This may just be the beginning of the rise
In the next two years, the global economic probability is still going through the depression. Maybe there is no media telling you that the economy has entered a recession, but you should have the feeling that in the past year, the days have been bad, no matter what you do, more and more Not smooth, in short, the more the more toss the more injured, the money-sensitive Internet companies have begun to take the lead in layoffs by the end of 2018.
If you pay attention to the latest news, those who used to take the headlines and make the limelight in the past, if not paying off in time, the recent days are very difficult. The unicorn enterprises listed overseas in the past year, most of the stock price squatting, domestic listed companies, those white horse stocks that have been packaged in the past have shown the original shape, the economy is not good, the return on investment is declining, ten bottles and nine games are supported. It won't go any longer. Just like the 2008 US financial turmoil, the glamorous Madoff has emerged.
Standing at such a time, what assets should we allocate? The central banks of the countries have already demonstrated to them, they are smashing gold, and even demanding that the gold of the United States in New York be shipped back to the country. As a common person, how to configure it, of course, should be the choice of non-sovereign assets! Gold and bitcoin are good! Buying a few gold bars at home is already old-style. As for the trendy and trendy, of course, I continue to pick up Bitcoin.
Author: Wan Tong CHAN Ho-nam