Author: Li Hualin; Source: Economic Daily
Recently, the price of Bitcoin exceeded US$60,000, and once exceeded US$64,000 on February 29, with an increase of more than 40% in the past month. What is the reason for this round of Bitcoin’s rise? What is the future trend? What investment risks are faced? The reporter interviewed industry experts.
Multiple factors drove the rise
In November 2021, after Bitcoin climbed to a historical peak of nearly $69,000, it was affected by the Federal Reserve’s aggressive interest rate hike cycle, the collapse of some industry trading platforms and Due to the influence of stricter supervision and other factors, the price has been declining, once reaching a low of US$16,000.
Talking about the recent rebound in Bitcoin prices, Zhao Wei, a senior researcher at the OKX Research Institute, a digital asset trading platform, said that after gradually digesting the Federal Reserve’s aggressive interest rate hike policy and industry “black swan” events, Bitcoin prices have continued to rise. Hitting the bottom in November 2022, market sentiment gradually stabilized, and the Bitcoin market entered a shock recovery channel. In this process, the rising expectations of the Federal Reserve's interest rate cut, the listing of Bitcoin spot ETFs, and the entry of incremental funds have combined to increase the valuation of the cryptocurrency industry and help the price of Bitcoin rise strongly.
Among them, the successful listing of Bitcoin spot ETFs has lowered the threshold for overseas investors to participate, increased market trading activity, and has become an important reason for the current round of Bitcoin strength. On January 11 this year, the U.S. Securities and Exchange Commission (SEC) officially approved the applications of 11 Bitcoin spot ETFs, including BlackRock and other institutions. "This provides a compliant way for institutional investors to enter the cryptocurrency market, and also brings convenience to the majority of retail investors, further expanding the audience base of Bitcoin." Co-chairman of the Blockchain Special Committee of China Communications Industry Association, Yu Jianing, honorary chairman of the Hong Kong Blockchain Association, said that as of February 17, the U.S. Bitcoin spot ETF had a net inflow of US$331.7 million on its 30th trading day, and the total net inflow since January 11 was US$4.9269 billion. The inflow of incremental funds has provided strong support for Bitcoin.
“During the Spring Festival this year, the global macroeconomic development picked up and the market maintained optimistic expectations for Bitcoin’s upcoming ‘halving’ market, etc., which promoted the rise in market prices. In addition, the volatility of the cryptocurrency market has increased significantly. Largely affected by financial derivatives and leveraged trading, in an environment where market participants generally use high leverage for investment, short-term rapid increases may also trigger a large number of forced liquidations, leading to a sharp increase in short-selling buying orders, thus accelerating the The market’s upward momentum." Yu Jianing said.
Strict supervision has not been relaxed
With the listing of Bitcoin spot ETFs, discussions on the "legal status" of Bitcoin have gradually heated up. Some people think that this means that major overseas markets are not interested in crypto. Attitudes toward currencies are beginning to soften, and cryptocurrencies have begun to win the tug-of-war with traditional financial regulation.
The truth is not that simple. Shortly after the Bitcoin ETF was approved for listing and trading, SEC Chairman Gary Gensler stated that although the SEC has approved the listing and trading of some Bitcoin spot ETFs, it has not approved or recognized Bitcoin. Bitcoin is a speculative, volatile asset. The approval of Bitcoin spot ETF will bring more supervision. Investors should remain cautious about the risks associated with Bitcoin and products whose value is tied to cryptocurrencies.
“The approval of Bitcoin ETF does not mean that cryptocurrency will make breakthrough progress in a short period of time.” Xiao Sa, a partner at Beijing Dacheng Law Firm and a director of the Bank of China Law Research Association, believes that first of all , ETF is just a financial instrument and does not change the nature of the cryptocurrency itself. At present, countries around the world generally regard Bitcoin and other cryptocurrencies as a special financial product or special virtual asset, and have successively introduced regulatory systems for Bitcoin. The approval of Bitcoin ETF does not affect the direct holding of Bitcoin by various countries. , established norms for using and trading cryptocurrencies. Secondly, from the perspective of regulating cryptocurrency investment risks, the impact and relationship between ETFs and cryptocurrencies is one-way transmission. ETFs cannot affect cryptocurrencies in the reverse direction, and therefore cannot effectively regulate the risks of cryptocurrencies. In addition, Bitcoin itself has special characteristics that cannot be replaced by other cryptocurrencies. It is more difficult for other cryptocurrencies to issue ETFs.
Some people are also concerned about whether residents of mainland my country can buy Bitcoin ETFs when they are publicly listed and traded? In fact, our country has always implemented strict supervision on cryptocurrencies such as Bitcoin. As early as September 2021, the "Notice on Further Preventing and Dealing with Speculation Risks of Virtual Currency Transactions" issued by the People's Bank of China, the Central Cyberspace Administration, the Supreme People's Court and other departments stipulated that "virtual currency-related business activities are illegal financial activities." "The provision of services by overseas virtual currency exchanges to residents in my country through the Internet is also an illegal financial activity," etc.
“This means that overseas Bitcoin ETF dealers cannot sell related financial products to Chinese citizens, and residents of mainland my country are not allowed to use relevant tools to directly purchase related financial products in the mainland.” Xiao Sa said , overall, the fact that cryptocurrencies have not entered the mainstream market has not changed, and investors are advised to keep a clear head.
Risks cannot be ignored
As the price of Bitcoin strengthens, more and more investors are paying attention. What will happen to Bitcoin next? Will another round of "bull market" begin?
In this regard, the Soochow Securities research team believes that Bitcoin will usher in triple benefits in 2024: "halving", the rise of the Bitcoin ecosystem, and expectations of an interest rate cut by the Federal Reserve. Among them, "halving" is a unique issuance mechanism of Bitcoin. Bitcoin mining rewards will be "halved" approximately every four years, which means that the difficulty of Bitcoin mining will increase and the supply will decrease. The latest "halving" will occur in the first half of this year. From historical experience, changes in supply and demand tend to help Bitcoin prices rise.
Some people hold different opinions. "Bitcoin's 'halving' has indeed become a catalyst for triggering a new round of 'bull market' on many occasions, but there are certain limitations in relying solely on historical models to predict future market trends." Yu Jianing believes that every time Bitcoin "halves" "The backgrounds are all different, and the cryptocurrency industry has become more mature and complex than before. Other factors, such as macroeconomic conditions, policy adjustments, and technological advancements, may also have a greater impact on the price of Bitcoin.
Since the advent of Bitcoin, the price has fluctuated all the way, with sharp rises and falls almost the norm. The multiple risks faced by the market cannot be ignored. "Risk is an inherent attribute of financial activities, and the encryption industry is no exception. The current cryptocurrency market is still facing potential negative factors such as increasing macroeconomic uncertainty, the existence of industry 'black swans', and unclear regulatory policies." Zhao Wei said .
“As an emerging digital asset, Bitcoin price fluctuations are affected by many factors, including market sentiment, macroeconomic environment, technological innovation, regulatory policies, etc.” Yu Jianing analyzed that various countries have different opinions on cryptocurrency Regulatory attitudes and policies are constantly evolving, and any new regulatory measures may have a significant impact on Bitcoin prices. At the same time, changes in the global macroeconomic environment, such as changes in interest rates, inflation rates and international trade relations, may also affect the value of Bitcoin and other cryptocurrencies. In addition, current cryptocurrency trading platforms and wallets are still facing risks such as hacking attacks and security breaches.
In the long run, the ultimate way out for the digital asset industry, including cryptocurrency, is to serve the real economy and help traditional industries transform and upgrade, improve quality and efficiency. "In the past few years, many mainstream digital assets have achieved great success because their innovations in digital technology and industrial applications have effectively changed the pain points of the real industry." Yu Jianing said, therefore, the future development trend of the digital asset industry It should be driven by digital technology innovation, manifested by business model innovation, and expanded by application scenarios as its essence.