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​Behind Bitcoin's plunge: Is Bitcoin Invest a Safe-Haven Asset?

​Behind Bitcoin's plunge: Is Bitcoin Invest a Safe-Haven Asset?

Recently, Bitcoin fell below 30,000 U.S. dollars, a daily decline of 16%. As of press time, Bitcoin was quoted on OKEx at 31,794 U.S. dollars. What happened to Bitcoin's plunge? Will the digital currency market welcome another cold winter? Let's take a look at the analysis of Bitcoin mining and Bitcoin invest.

The recent slump in the Bitcoin market has not only caused internal reasons for excessively high price bubbles due to speculation, but also by external policy and regulatory changes.

First of all, we should clearly realize that Bitcoin invest is a high-risk asset, not a safe-haven asset. Recently, the governor of the Riksbank, Ingves, stated at a meeting of the country’s banking industry that trading Bitcoin is like trading stamps, and that this unofficial currency will eventually fail in some way. Ingves’ remarks are broadly consistent with other central bank officials’ views on Bitcoin and cryptocurrencies. In February of this year, the governor of the Bank of Ireland Markroff stated that investing in Bitcoin must be prepared to lose money. The Governor of the Bank of England Andrew Bailey also said in May this year that this cryptocurrency has no intrinsic value and may collapse to zero. Bitcoin Investors must be prepared to lose all their money.

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Moreover, as a special asset class, Bitcoin mining, unlike stocks or bonds, does not generate any predictable cash flow. Investors can only get rewards when price of Bitcoin rise, which makes it easier to form speculative bubbles.

A typical bubble cycle can be divided into five stages: incubation, prosperity, excitement, predicament, and panic. What has happened to the Bitcoin market in the past period of time? Consider the following data:

It took more than a month for Bitcoin to rise from USD 10,000 to USD 20,000;

It took nearly half a month for Bitcoin to rise from US$20,000 to US$30,000;

It took less than a week for Bitcoin to rise from $30,000 to $40,000;

This crazy rise shows that speculation in the Bitcoin mining market has become the dominant factor. The market has accumulated a lot of risks and formed a huge bubble. Only an external fuse is needed to detonate the entire market. So what is an external fuze? There are two main ones:

First, the current market has begun to diverge on future inflation expectations. The fundamental reason for the birth of this Bitcoin invest bull market lies in the market’s expectations of high future inflation. In an economic environment of high inflation and low growth, in order to avoid the loss of nominal principal and the need to pursue higher returns, investors’ demand for hoarding cash has naturally evolved into a demand for gold and Bitcoin, which has driven Bitcoin Currency bull market. However, with the launch of vaccines in various countries, including the fiscal stimulus measures brought by the new US government, they will promote economic recovery. Under the dual pressure of economic recovery expectations and high inflation expectations, the market speculates that the world's major central banks will gradually withdraw from the existing easing policies. In particular, in the minutes of the Fed meeting in December 2020 announced on January 6, discussions on reducing the scale of bond purchases appeared for the first time, which strengthened the market's divergence on future monetary policy.

Secondly, Yellen, the nominee of the new U.S. Treasury Secretary, recently stated in the confirmation hearing that cryptocurrency has the opportunity to abuse illegal financing and should be supervised.

In the past period of time, the market has always liked to discuss that Gary may become the next SEX chairman, and this will have a positive impact on the industry. But in fact, the political policies of the United States have a strong party color. Currently, the Democratic Party has won the majority of seats in the White House and both houses of Congress, and has achieved "full governance." The Democratic Party is a left-wing party that emphasizes big government, advocates strengthening financial supervision and increasing taxation. It is an unrealistic fantasy to think that Gary will relax the regulation of the cryptocurrency industry after assuming the chairmanship of the SEC. Yellen's recent statement also confirms this point.

Therefore, under the influence of the above two external factors, the Bitcoin mining market entered the panic phase of the asset bubble cycle, and the price plummeted.

American billionaire investor and hedge fund predator Lyon Cooperman said on Thursday that people who don’t understand Bitcoin are likely to be seniors like himself. For those looking for a stable safe haven for cash or gold, which is a better means of maintaining value.

Cooperman said that although senior investors like Barry Diller (Chairman of Expedia and digital media company IAC) consider cryptocurrencies to be "scams", he doesn't know if they are really because he has nothing to do with digital assets. But he said that one thing he knew very well was that it was not in the interest of the US government to make Bitcoin mining an alternative to the US dollar.

Cooperman said: "I guess I will treat Bitcoin mining very carefully. I don't think it makes much sense. If you are uneasy about the world, for me, gold is a better place to hold value than Bitcoin invest."