Bitcoin has risen by more than 40% in the past month. Industry insiders: Risks cannot be ignored

Recently, the price of Bitcoin exceeded $60,000, and on February 29, it even exceeded $64,000, with an increase of more than 40% in the past month. What is the motivation for this round of Bitcoin rise? What will be the future trend? What are the investment risks? The reporter interviewed industry experts.

Multiple factors drive the rise

In November 2021, after Bitcoin climbed to an all-time high of nearly $69,000, its price continued to decline, reaching a low of $16,000 due to the Federal Reserve's aggressive interest rate hike cycle, the collapse of some industry trading platforms, and stricter supervision.

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 Fed's aggressive interest rate hike policy and industry "black swan" events, Bitcoin prices bottomed out in November 2022, market sentiment gradually stabilized, and Bitcoin prices entered a shock repair channel. In this process, the Fed's expectations of rate cuts, the listing of Bitcoin spot ETFs, and the entry of incremental funds have superimposed and resonated, which has increased the valuation of the cryptocurrency industry and helped Bitcoin prices 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 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." Yu Jianing, co-chairman of the Blockchain Committee of the China Communications Industry Association and 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 the 30th trading day, and the total net inflow since January 11 was US$4.9269 billion. The entry of incremental funds has provided strong support for Bitcoin.

"During the Spring Festival this year, the global macroeconomic development rebounded and the market remained optimistic about the upcoming 'halving' of Bitcoin, which pushed up market prices. In addition, the volatility of the cryptocurrency market is largely affected by financial derivatives and leveraged trading. In an environment where market participants generally use high leverage to invest, a rapid short-term rise may also trigger a large number of forced liquidations, resulting in a sharp increase in short-selling buying, thereby accelerating the market's upward momentum." Yu Jianing said.

Strict supervision has not been relaxed

With the listing and trading of Bitcoin spot ETFs, discussions on the "legal status" of Bitcoin have gradually heated up. Some people believe that this means that the attitude of major overseas markets towards cryptocurrencies has begun to soften, and that 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, Gary Gensler, chairman of the U.S. Securities and Exchange Commission, stated that although the U.S. Securities and Exchange Commission has approved the listing and trading of some Bitcoin spot ETFs, it has not approved or recognized Bitcoin. Bitcoin is a speculative and volatile asset. The approval of the Bitcoin spot ETF will bring more supervision. Investors should be cautious about the risks of Bitcoin and products whose value is linked to cryptocurrencies.

"The approval of Bitcoin ETF does not mean that cryptocurrencies will achieve breakthroughs in a short period of time." Xiao Sa, partner of Beijing Dacheng Law Firm and director of China Banking Law Research Association, believes that, first of all, ETF is just a financial instrument and will not change the nature of cryptocurrency itself. At present, countries around the world generally regard Bitcoin and other cryptocurrencies as a special financial product or a special virtual asset, and have successively introduced regulatory systems for Bitcoin. The approval of Bitcoin ETF does not affect the existing regulations of various countries on direct holding, use and trading of cryptocurrencies. Secondly, from the perspective of regulating cryptocurrency investment risks, the influence and relationship between ETF and cryptocurrency are one-way transmission. ETF cannot reversely affect cryptocurrency, and it cannot effectively regulate the risks of cryptocurrency. In addition, Bitcoin itself has its own special characteristics that cannot be replaced by other cryptocurrencies, and it is more difficult for other cryptocurrencies to issue ETFs.

Some people are also concerned about whether residents in mainland my country can buy Bitcoin ETFs if they are publicly listed and traded? In fact, my country has always implemented strict supervision on cryptocurrencies such as Bitcoin. As early as September 2021, the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation" issued by the People's Bank of China, the Central Cyberspace Affairs Commission, the Supreme People's Court and other departments stipulated that "virtual currency-related business activities are illegal financial activities" and "foreign virtual currency exchanges providing services to residents in my country through the Internet are also illegal financial activities".

"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 directly use related tools to purchase related financial products in the mainland." Xiao Sa said that overall, the fact that cryptocurrency has 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 to it. How will Bitcoin perform in the future? Will it usher in another round of "bull market"?

In this regard, the research team of Soochow Securities believes that Bitcoin will usher in three positive factors in 2024: "halving", the rise of the Bitcoin ecosystem, and the expectation of a rate cut by the Federal Reserve. Among them, "halving" is a unique issuance mechanism for Bitcoin. The Bitcoin mining reward will be "halved" approximately every 4 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 often help Bitcoin prices rise.

Some people hold different opinions. "Bitcoin halving has indeed been a catalyst for a new round of bull market many times, but relying solely on historical patterns to predict future market trends has certain limitations." Yu Jianing believes that the background of each Bitcoin halving is different, and the cryptocurrency industry is more mature and complex than before. Other factors such as macroeconomic conditions, policy adjustments and technological progress may also have a greater impact on Bitcoin prices.

Since the advent of Bitcoin, the price has been fluctuating, with sharp rises and falls being the norm. The multiple risks facing the market cannot be ignored. "Risk is an inherent attribute of financial activities, and the crypto industry is no exception. The current cryptocurrency market is still facing potential negative factors such as increased macroeconomic uncertainty, the existence of industry 'black swans', and unclear regulatory policies," said Zhao Wei.

"As an emerging digital asset, Bitcoin price fluctuations are affected by many factors, including market sentiment, macroeconomic environment, technological innovation, and regulatory policies." Yu Jianing analyzed that the regulatory attitudes and policies of various countries towards cryptocurrencies 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 interest rate changes, 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 hacker attacks and security vulnerabilities.

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 increase efficiency. "In the past few years, many mainstream digital assets have achieved great success because of their innovations in digital technology and industrial applications, which have effectively changed the pain points of the real industry." Yu Jianing said that, therefore, the future development trend of the digital asset industry should be driven by digital technology innovation, manifested by business model innovation, and expanded application scenarios.