Bitcoin, which was born in the last financial crisis, will accelerate its maturity this year after undergoing a gradual transition to a quasi-currency status such as gold. This year, Bitcoin has undergone a key reshuffle. In addition to the negative impact of the stock market, in-depth analysis, we can still see many favorable factors that promote Bitcoin from the macro economy.
Quantitative easing policy and negative interest rate environment
At present, the size of the Fed’s balance sheet is approaching 7 trillion U.S. dollars, of which only 3 trillion U.S. dollars have been inflated in the first half of 2020.
Coincidentally, this “legend” history has also witnessed. We took the timeline back to 1923, and the Weimar Republic was unable to repay the World War I compensation. It was occupied by the French army in its Ruhr Valley industrial area, and was asked to replace hard currency with commodities as compensation. As a counterattack, the angry Germans carried out a major strike in the Ruhr area and millions of people were unemployed. In order to support the strike, the Weimar government printed a large amount of money to pay the wages of strikers, which triggered the most serious hyperinflation in Germany from 1923 to 1924 and led to the destruction of the German currency.
Now, with the spread of new coronaviruses in the United States in a thunderbolt, the largest unemployment wave in history has occurred in the United States. In response, the US Treasury is printing trillions of dollars, and the Fed has expanded its borrowing measures by trillions of dollars. Since 2020, the Fed’s balance sheet has expanded by $3 trillion, of which $1 trillion was printed in the past 30 days.
However, unlike history, the US dollar remains strong relative to other currencies. Currently, 80% of global trade transactions are settled in U.S. dollars, and 85% of non-domestic debt is denominated in U.S. dollars (approximately $100 trillion). As the global economic recession is gradually evolving into a global solvency event, the US dollar continues to remain high relative to the rest of the world and the latter is racing to lower interest rates to depreciate the national currency against the US dollar.
Source: Bloomberg
Recently, the negative interest rates of major central banks have aroused great concern. Many developed countries and regions, especially Japan and Switzerland, have adopted negative interest rates, while European and Scandinavian national interest rates (Sweden, Denmark, Norway) fluctuated around 0%.
It should be mentioned that in addition to the factor of the benchmark interest rate, the market interest rate and the market expected interest rate cannot be ignored either.
In many major currencies, market expectations have turned to negative interest rates, as implied by interest rate futures.
The actual rate of return is the difference between the yield of nominal government bonds and inflation-preserved bonds (coupons reflect the rate of inflation). At present, the actual yield of US Treasury bonds has all been below zero. In fact, the entire 5-year to 30-year curve is in the negative range.
In the UK, the yield on 2-year Treasury bonds (government bonds) has been negative for the first time in the history of hundreds of years. At the most recent meeting of the Bank of England (BOE) Monetary Policy Committee, two of the nine policymakers voted to support the immediate expansion of quantitative easing of about £100 billion ($124 billion).
Eight years ago, on July 26, 2012, when countries in the euro zone were involved in the sovereign debt crisis, ECB President Mario Draghi stated that the ECB was willing to defend the euro at all costs. Today, global central banks are working to cut interest rates and expand their balance sheets to “do everything possible” to get rid of the current economic downturn through inflation.
Gold is gaining momentum
Zero benchmark interest rates and negative benchmark interest rates will undoubtedly boost the prices of gold and Bitcoin. The risks that caused the precious metals bull market to derail—the rapid rise in stocks, the strengthening of the dollar, and the rise in real interest rates—have been common for most of the past decade. These risks all emerged after the gold price hit a record high in 2011. At present, the benchmark interest rate is zero or negative, and major central banks around the world have begun to adopt unlimited quantitative easing monetary stimulus measures similar to those in 2008. We expect gold prices to continue to rise, accompanied by institutional investors and retail investors. Portfolio transfer.
Hong Kong fund managers have been encouraging retail investors to enter the gold market. For example, in response to customer demand, State Street Global Advisors (State Street Global Advisors) began to reduce the number of units of its SPDR® gold ETF (the world’s largest gold ETF fund) listed in Hong Kong from April 24 , From the original 10 shares per lot to 5 shares. This measure to lower the investment threshold allows ordinary investors to participate by subscribing to minority shares, thereby increasing investment participation.
On the institutional side, many world-renowned hedge funds are publicly doubling their bets on gold. Among the most well-known are Paul Singer’s Elliott Management, Andrew Law’s Caxton Associates and Dingya Capital’s Yang Mingzhang (Danny Yong). The rising interest in gold investment is a big plus for Bitcoin. Traditional investors have a lot of money in their hands, and they may view Bitcoin as a Crypto currency alternative. In the same macro environment, it goes up with gold, and Bitcoin’s status as a Crypto tool for wealth storage will be consolidated.
Paul Tudor Jones, one of the most legendary macro traders in the world, became the first person to eat crabs. In a letter to investors, he revealed that 2% of the assets in his macro flagship fund (asset management scale of 22 billion U.S. dollars) have been allocated to Bitcoin as a hedge against inflation. This means that at least $200 million of Bitcoin has been withdrawn from the market (this can be seen from the increase in the open position of the Chicago Mercantile Exchange). In the past, gold was considered to have magical properties in various eras; but today, Bitcoin has also been given unique magical attributes by the era, such as portability, interchangeability, scarcity, and anonymity. In the future, with the continued collapse of the global economy and the continuous printing of banknotes by major central banks, Bitcoin will surely gain more attention due to its attribute advantages.
Emerging Markets
One of the key support points that Bitcoin needs to focus on is the psychological price of $10,000, which coincides with the 2018 downward resistance line. If the bitcoin price breaks the $10,000 price mark, it means that the bitcoin bull market will continue, so this is one of the most concerned technical support levels for bitcoin in the long run.
It is worth mentioning that although BTC/USD continues to consolidate at this level, the price trend of Bitcoin relative to emerging market currencies is very bullish, and there have been breakthroughs, especially for the Turkish Lira, Brazilian Real, and Mexican Peso . This may be a sign of future development trends.
Capital flow and market technology
GBTC is the Bitcoin Trust Fund of Grayscale Capital. Its asset management scale has reached a record high, and the net asset premium has remained at around 20%. Chicago Mercantile Exchange (CME) futures open interest contracts have also increased significantly this year. Both of these factors indicate that despite the limited access to the Bitcoin market, market participants, including traditional brokers, fund companies, and other investors, continue to invest funds in Bitcoin.
More and more institutions have joined this BTC feast. Andreesen Horowitz (a16z), a top venture capital firm in Silicon Valley, recently announced that their second crypto fund’s asset management scale has reached US$515 million. In terms of retail investors, according to Coinbase, the platform has received a large amount of deposits of exactly $1,200 since the IRS began to issue $1,200 in relief. At the same time, the creation of bitcoin’s new active addresses continues to soar. Based on history, this is a very optimistic indicator, because usually after this bitcoin price will rise strongly.
Source: Bloomberg News
Finally, the number of USDT and stablecoins held by the exchange continues to hover at record levels, and the newly issued TEDA has made USDT the third-largest cryptocurrency (ranked by market capitalization of $8.8 billion). One day, all this money will come in handy.
According to Amber platform data, miners have a tendency to hedge against risks, which represents a tendency for a large portion of Asian markets to purchase economic downside protection. We think this is a positive signal that the market is low in complacency.