Bitcoin has become part of the financial system and is not mutually exclusive with gold

What will impress everyone the most in 2020 is undoubtedly the covid-19 virus epidemic, but this year also has special significance for Bitcoin. After 12 years of development, Bitcoin has become more and more mature this year.

The Jeffrey Group, a well-known Wall Street investment bank, recently analyzed the Bitcoin market in its “Fear & Greed” investment weekly report. There is no doubt that the performance of the Bitcoin market in 2020 can be described as stunning. At the time of writing, according to the data of Coingecko, Bitcoin The price of Bitcoin has reached US$23,547.46, which is a 474% increase from the low price of “Black Thursday” on March 12 and a 214% increase from the beginning of this year. On December 16, 2020, the price of Bitcoin has historically It exceeded US$20,000, and the single-day increase reached 9.2% (as shown in Figure 1 below). The Bitcoin price surge this time is completely different from 2017. With stronger fundamentals and various other reasons, the Bitcoin price may even rise even higher.

Some institutional investors and investment “big guys” have publicly bought Bitcoin. In addition, retail investors now have the opportunity to use various investment tools to buy Bitcoin, such as the Grayscale Bitcoin Trust Fund in the United States, and recently on the Frankfurt Exchange. The online VanEck Vectors Bitcoin exchange traded bills, and the premium of Grayscale’s Bitcoin trust fund continued to rise, indicating that more and more institutions have begun to seek exposure to Bitcoin investment, even at a price higher than the spot price. It is almost certain that Bitcoin today has become part of the financial system.


There is no doubt that in this rapidly rising Bitcoin bull market, large institutional investors have played a very important role. Without them, it is difficult to say whether Bitcoin can achieve a historical breakthrough in three months. Broadly speaking, this Bitcoin bull market is led by institutional investors and high-net-worth individuals, who are more likely to buy Bitcoin for long-term holding rather than returning to the exchange.

Before institutional investors buy Bitcoin, there are many risks in the Bitcoin market. In addition to the possibility of Bitcoin accounts being hacked, Bitcoin has been considered the most common payment method used by illegal traders, such as on the dark web. Buy illegal narcotics. But with the entry of institutional investors, Bitcoin has now been rectified. The market’s rise actually started in August. At that time, the most important indicator was that the Nasdaq-listed business intelligence software MicroStrategy announced its entry into the Bitcoin market. On August 11, 2020, MicroStrategy announced that it had invested 2.5 in Bitcoin. From then on, it blew the clarion call for institutional investors to enter the Bitcoin market. On September 8, MicroStrategy announced that it would invest 175 million U.S. dollars to buy Bitcoin. So far, the company’s investment in Bitcoin has reached 425 million U.S. dollars.

According to MicroStrategy’s 8-K application form submitted to the US Securities and Exchange Commission (SEC), the company will choose Bitcoin as a major reserve asset. In its balance sheet, Bitcoin is the same as cash and other short-term investments. of. After that, MicroStrategy invested another US$50 million to buy bitcoins in early December, and the company currently holds a total of 40,824 bitcoins.

Just after the audit department and the US Securities and Exchange Commission approved MicroStrategy to include Bitcoin on its balance sheet, the cryptocurrency market began to rise. This event may be a watershed in the second wave of bull market. Soon after MicroStrategy publicly invested in Bitcoin, the payment company Square began to follow suit. They took out 1% of the company’s total assets and invested about $50 million in Bitcoin. Square’s Chief Financial Officer Amrita Ahuja said: “We think Bitcoin It may become a more universal currency in the future. Investing in Bitcoin is just our first step.” Although Square’s investment in Bitcoin is not large, and may not even need to be reported publicly, the effects and significance are the same in the current market environment. In addition, on October 21, 2020, PayPal also announced its official entry into the Bitcoin industry, allowing users to directly purchase Bitcoin and other cryptocurrencies. Just one month later, the number of Bitcoins purchased by PayPal has accounted for the newly mined Bitcoins that month. 70% of it.

Many people actually did not expect MicroStrategy to enter the cryptocurrency market at all, because as a traditional smart business company, they are mainly engaged in technology and software fields, and their businesses have been deployed in the traditional technology industry for nearly 31 years. Since the announcement of its investment in Bitcoin, MicroStrategy’s market value has increased by 131% to $2.77 billion (as shown in Figure 2 below).

In addition, the value of MicroStrategy’s previous investment in Bitcoin has almost doubled, and is currently approximately US$917 million. Since going public in 1998, the co-founder of MicroStrategy, Michael Saylor, has served as the company’s chief executive officer for 22 years. He has never been a “quick money” operator, so this time Choosing to invest in Bitcoin should be his deliberate decision.

It’s worth noting that Michael Thaler didn’t start to understand Bitcoin until 2019, and then decided to invest part of the company’s funds in Bitcoin as a store of value until the spring of 2020, because he believed that Bitcoin is Crypto. Gold is stronger, faster, and smarter than any currency. As the world’s best stored-value asset, it will become the currency network that dominates the market. Bitcoin can effectively solve the value faced by everyone, companies, and governments on the planet. Storage problem. Investing in Bitcoin will make the world a better place. So Michael Thaler persuaded the auditors and lawyers, and the auditors finally approved MicroStrategy to invest in Bitcoin in just ten weeks.

1608710681544858Source: Bloomberg News

Michael Thaler believes that although Bitcoin is an ideal reserve asset, for those who hold gold, they now feel that Bitcoin is threatening the value proposition of gold and is “de-golden”. From the perspective of ownership, Bitcoin and gold are not mutually exclusive, but now Bitcoin has more advantages. Investors of different generations will be attracted to Bitcoin, such as baby boomers and millennials.

If you are a gold investor, you may need to pay attention to the actual risks posed by this safe-haven asset. Due to the impact of the covid-19 virus epidemic, G7 countries have implemented monetary quantitative easing policies, and there is a risk of depreciation of legal currencies in all countries around the world. In the past, safe-haven assets such as gold can indeed hedge against such risks, but now the safe-haven attribute is shifting to Bitcoin ——It is worth mentioning that this transfer process has actually begun.

There is also a cruel fact. In fact, the United States initiated monetary quantitative easing after the 2008 financial crisis. If calculated from then, the value of Bitcoin has risen by 177,000 times more than gold (as shown in Figure 3 below. Show). A large part of the reason for such an astonishing increase is because Bitcoin is a deflationary asset, and its supply is fixed (21 million), and its circulation is halved every four years. In contrast, although mining is difficult, the supply of gold is not fixed.

1608710681544958Source: Bloomberg

However, gold has not been completely abandoned by investors. Although the recent poor performance of gold relative to US real interest rates and the US dollar has caused some investors to worry that Bitcoin is replacing gold as the first choice for inflation hedging tools, the growing popularity of Bitcoin does not currently pose a threat to gold’s status. In addition, as more and more vaccines are launched, the covid-19 virus epidemic is expected to ease over time. Once the Fed decides not to implement the monetary quantitative easing policy, the market is likely to enter a new round of cyclical recovery. The price may rise again as a result.

According to the information disclosed at the latest meeting of the Federal Open Market Committee (FOMC) of the Federal Reserve, since the covid-19 virus vaccine has been approved for listing, the market may enter a recovery state in the future. However, it is expected that the inflation target of only 2% will be achieved by 2023, and it is very large. Most Fed governors believe that short-term low interest rates will be maintained for at least three years, at least three years. If the covid-19 virus epidemic is effectively controlled, the financial market may show signs of cyclical recovery in 2021, and the previously suppressed demand may be released. Then whether the Fed will insist on low interest rates is worthy of attention. If only because the financial system cannot withstand higher interest rates, the moderate Fed may still maintain low interest rates. The problem is that although low interest rates will not cause severe market volatility, they will at least cause slight fluctuations. Global investment Everyone needs to understand this.

Chris Wood, head of global equity strategy at Jefferies Group, a well-known Wall Street investment bank, suggested that investors can hold Bitcoin as early as June 2019. In the weekly letter to investors, Chris Wood Said that Bitcoin is continuing to rise, and that it is a better way to store value than gold, he wrote: “The investment in physical gold, which previously accounted for 50% of the pension fund portfolio, will gradually increase in the next few years. A reduction of five percentage points. These funds are intended to be used to invest in Bitcoin. If the price of Bitcoin falls sharply after breaking through the $20,000 level, I will intentionally increase the Bitcoin position.” (As shown in Figure 4 below, Chris Wood said The weight of physical gold today will drop from 50% to 45%.)

The price of gold in the third quarter of 2002 was at $323 per ounce. If you did not choose to invest in gold at that time, you don’t have to feel that you missed the opportunity, because now it may be an opportunity to invest in Bitcoin. I hope you don’t miss Bitcoin like you missed gold.

Exhibit 4: Proposal to allocate long assets for dollar-based pension funds

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