Author: Lao Guo
On Wednesday night, bitcoin set a new record of $20000.
Three years later, bitcoin has another bull market.
For a while, the money circle reveled, and cryptocurrency investors exclaimed and witnessed the miracle. The exchanges of binance and coinbase went down because of the sudden surge in trading volume.
In the cryptocurrency carnival, institutional investors have made a lot of money, while bitcoin bears have lost a lot.
As of 9:16, the number of open positions in the past hour reached 773 million yuan, and that in the past 24 hours reached 4.485 billion US dollars.
After hitting a record high, the voice of institutions singing more and more loud, where will bitcoin go?
Bitcoin: a successful traditional asset
Since its birth in 2009, bitcoin and other cryptocurrency assets have been controversial. After bitcoin broke the $20000 mark, some investors thought that bitcoin itself had no value at all, and all the rise was due to speculation.
Such a voice has not disappeared since the birth of bitcoin. But if we look back at the performance of bitcoin in the past decade and compare it with traditional assets, we will find that it is such a virtual asset that has been regarded as totally worthless, which has almost “killed” all traditional assets in the past decade.
Raoul pal, an investment strategist, has calculated the return on bitcoin over the past decade. As shown in the figure below, its total return has exceeded 6200000 and its annualized return has exceeded 200%.
Even the best performing Nasdaq 100 index in the past decade has been far removed. The total return of the index in the past decade was 512.5% and the annualized rate of return was 20%. It is already a leader in other assets except cryptocurrency. Not to mention the rate of return in bitcoin over the past decade, not to mention the total return on bitcoin.
In the past decade, bitcoin’s rate of return has been negative in only two years, 2014 (- 58%) and 2018 (- 73%). Before that, bitcoin has increased more than ten times or even dozens of times.
The above chart also shows a rule: before the annual return of bitcoin is negative, it has been rising for three consecutive years. This year is the second consecutive year since bitcoin’s last negative return. If this rule really exists, it means that it will continue to rise. Of course, this law does not necessarily come true.
Let’s look at another picture. Over the past decade, the performance of US technology stocks has been obvious to all, and they are also the main force in the bull market of US stocks. Yet even the most frenzied US tech giant of the past decade has not grown as fast as bitcoin.
It can be seen that the price of bitcoin has been rising in the past decade, although people have been questioning it all the time. It’s very much like the U.S. stock market of the past decade, which has hit new highs in the air.
According to the survey of fund managers of Bank of America, long bitcoin has become the third most crowded transaction, which shows the popularity of bitcoin.
Who created the bitcoin bull market?
Three years ago, the nabobit bull market was dominated by retail investors. This time, institutional investors have become the main force.
This year, massive money printing and stimulus measures by global central banks have raised concerns about massive inflation, turning cash into inflation fighting assets such as bitcoin.
Nowadays, interest rates in developed countries are close to or below zero. Fiscal expenditure of governments and monetization of central bank debt have become the main way to stimulate economic growth. The consequence of a large increase in the money supply will be the devaluation of the currency and the possibility of inflation. In the end, all of these newly created trillions of liquidity have entered alternative currencies such as cryptocurrencies.
The global central bank’s massive release of water and unprecedented fiscal stimulus also make the returns of traditional assets lower and lower. Investors do not lack funds, but lack targets that can bring them high returns.
According to a report released last week by fidelity digital assets, 60% of the institutional investors interviewed said they would consider allocating unconventional, highly uncertain but potentially profitable digital assets in their portfolios in the future.
In other words, the global monetary easing policy has made bitcoin the absolute beneficiary of the new epidemic economy.
We can also explain the bitcoin boom from the perspective of supply and demand. Since bitcoin was halved for the third time since its birth in May this year, the reward for each block has been reduced to 6.25 bitcoins, and the supply has been greatly reduced. In the case of a surge in demand, bitcoin is more of a game between supply and demand in the stock market, which is also a key factor in determining the price of bitcoin.
If only the above factors, it may not be enough to make institutions flocking to the special currency. Another factor also played a crucial role in the rise of the special currency.
In January, the gray scale investment bitcoin trust was approved as the first digital asset instrument to meet the SEC’s standards. On October 12, the gray Ethereum trust registration application was officially approved.
Most institutional investors prefer value investment, and their holding period is usually very long. They don’t buy today, but sell tomorrow if they go up. Most of them belong to long-term strategic positions. Before that, there was a lack of compliance products in the field of cryptocurrency, and there was also a serious lack of supervision. Therefore, in the past bitcoin bull market, institutions are rarely seen.
The standardization of gray bitcoin trust products has changed the above situation. According to the publicly disclosed information, as of November 9, 2020, 23 companies (29 Institutional Accounts in total) held gray bitcoin Trust shares, with 59.5532 million shares in total, accounting for 11.55% of the issued shares of gray bitcoin trust.
These 23 companies include crypto asset lending companies, hedge funds, mutual funds, private wealth companies, consulting firms, family offices, etc.
Therefore, the compliance of gray bitcoin trust products provides a mature channel for qualified investors such as funds and family offices to purchase bitcoin assets.
This trend is likely to accelerate in the future. Behind the continued purchase of gray bitcoin trust products by these large investors may be an irreversible wealth transfer.
So, on the surface, it seems that institutions have created the bitcoin bull market, but in fact, they are just following the trend of the market.
After breaking the $20000 mark, where will bitcoin go?
After bitcoin broke the $20000 mark last night (December 16), many people’s first reaction may be “this is crazy”!
Before the publication of the article, bitcoin had once risen above $22000. Now many people are concerned about whether bitcoin has peaked? The daily chart of bitcoin in these two days is a little similar to that before the sharp fall in 2017. As shown in the figure below, bitcoin in 2017 (left) had a jump in the sky when it hit a record high. Yesterday (right) bitcoin broke through the $20000 mark, and today it is also open high.
This trend is surprisingly similar, but will the results be the same? The next few days may give the answer.
It should be noted that institutional investors, the main force of this bull market, have no sign of withdrawing at present. The interest of institutions in the special currency continues to rise, and some institutions are still adding bitcoin.
Ruffer Investment Company Limited, an investment management company listed on the London Stock Exchange, has disclosed its new bitcoin investment strategy, cointelegraph reported on Wednesday morning. Ruffe said on Tuesday that it has included bitcoin in its multi Strategies Fund as a defensive measure against the “continuous depreciation” of the legal tender. Bitcoin assets currently held by the fund account for about 2.5% of total assets.
MicroStrategy, a database software company, is a typical example of bitcoin investment. It announced on August 11 that it would invest $250 million of inflation hedge funds into digital currency. On Friday, the company bought another $50 million of bitcoin directly. On Wednesday, it expanded its original $400 million bond issue to $550 million, and the money raised will be used to buy more bitcoin.
Bitcoin’s share price is up 6% at the same time as bitcoin soared last night. The company has invested in bitcoin for five months, and its profits have exceeded the sum of its net profits in the traditional software business in the past five years. The share price of the company doubled in a month.
It is worth noting that this company looks unknown, but the capital behind it is no stranger to everyone. According to the information disclosed by MicroStrategy, its largest shareholder is BlackRock assets; the second largest shareholder is pioneer pilot fund, the world’s largest fund company; the seventh largest shareholder is Russell investment; and the tenth largest shareholder is Renaissance Technology Fund.
Therefore, the large-scale investment of MicroStrategy compared with the special currency largely represents the attitude of the four traditional financial giants.
Jin Shi also mentioned in the morning’s article that institutional investors are still optimistic about bitcoin. They believe that breaking the psychological barrier of $20000 is only the beginning, and that the next step is to break through the $30000 mark. Minerd, chief investment officer at Guggenheim, even said bitcoin would eventually climb to around $400000.
At present, it is worth noting that a new futures contract will be launched in August 2021, and it is worth noting that there is a new one to be reviewed by the futures clearing house in January 2021. Ethereum is currently the second largest cryptocurrency in terms of market value and daily trading volume. If the review is passed, it will attract a new batch of funds.
Therefore, in the long run, bitcoin’s upward trend may not be so easy to end, but for retail investors, we need to be careful of bitcoin’s short-term correction. It is normal for us $1000 and $2000 to be recalled.
Before investing in bitcoin and other cryptocurrencies, individual investors should first consider their risk tolerance, invest rationally, and avoid blindly chasing more.