A sharp drop of nearly 8%! Is Bitcoin going to fail? The biggest "short seller" is coming!

This is very similar to the A-share market after the first quarter adjustment. In addition to liquor, funds have also begun to explore other interesting stocks. Now, investors in the digital currency market have also begun to allocate more funds to Ethereum instead of just buying Bitcoin.

Ethereum, the world's second largest market capitalization, is leading a new round of the market, just like Moutai is not equal to A-shares, and Bitcoin is not equal to digital currency. In the past 30 days, the price of Ethereum has risen by 60%, setting a record high, while Bitcoin has fallen by 7% during the same period.

It is worth noting that Bitcoin fell from above $58,000 on Monday to a low of less than $54,000. At the beginning of the U.S. stock market on May 4, Bitcoin reached above $55,000. After Yellen's remarks on a small interest rate hike, it fell below $54,000, and the decline widened to nearly 8% within 24 hours. By the close of the U.S. stock market, Bitcoin returned to above $54,000.

In addition, Dogecoin surged 40% in 24 hours. Data shows that the market value of Dogecoin has surpassed that of Ripple and ranked fourth. On the evening of May 4, Dogecoin stood at $0.6 per coin, setting a new record high. It has nearly doubled in the past 7 days. If calculated from the beginning of this year, the increase is more than 100 times.

For quite a long time, Bitcoin has been leading the market, just like the stock king Moutai led the A-share market. This change in the digital currency market seems to be a trend. Bitcoin's share of the entire digital currency market reached 80% in 2017, and dropped to 60% in July last year. During the May Day holiday this year, Bitcoin's market value share dropped to 47%, while Ethereum's market value share has continued to increase over the past three years, and has now reached nearly 18% of the total market value of the currency circle.

In terms of margin accounts, a large number of stock investors who are accustomed to over-the-counter margin trading and securities lending have entered the digital currency market, resulting in the continued growth of the scale of Ethereum and Bitcoin margin accounts. In the past 24 hours, a total of 142,292 margin trading or financing accounts have been liquidated for more than 6.6 billion yuan, most of which came from Bitcoin and Ethereum margin trading accounts.

Funds flow out of Bitcoin, and Ethereum develops an independent trend

Just as many stock investors consider Bitcoin to be the be-all and end-all for the digital currency market, Ethereum’s price hits an all-time high.

On May 4, the price of Ethereum, the world's second largest digital currency, broke through $3,500, a 13% increase in 24 hours. The $3,500 price also means that Ethereum has hit a new all-time high, and this happened within a month of Bitcoin's price correction. As of the morning of May 5, the price of Ethereum remained at $3,300.

Ethereum's strength is directly related to Bitcoin's recent weakness. The rotation and structural adjustment of the digital currency market and A-shares have similar characteristics. While Kweichow Moutai has been weak and volatile recently, many second-tier blue-chip stocks have developed independent trends in the recent A-share market, and even hit record highs.

Precisely because of the market characteristics of rise and fall, Ethereum’s strength has led some investors to believe that Ethereum may become the biggest short of Bitcoin!

Could Ethereum Become Bitcoin’s Biggest Short?

"Long term, I do think the short of Bitcoin is Ethereum." Well-known trader and analyst Crypto Cobain believes that if Ethereum continues to rise above Bitcoin's market value, then this could harm the success of the leading crypto asset as long-term Bitcoin asset holders would exchange their holdings for Ethereum.

China Securities Journal also noted that Bitcoin's share of the global digital currency market value once reached 80% in March 2017, while many digital currencies including Ethereum only accounted for 20%. Now, with the recovery of the price of altcoins, Bitcoin's share of the market value is gradually declining. In August 2019, Bitcoin's share of the market value fell to 70%, while the share of altcoins rose to 30%. In July 2020, Bitcoin's share of the market value fell to 60%.

As the price of Ethereum has continued to strengthen since 2021, as of May 5, 2021, Bitcoin's share of the overall market value of the crypto market has dropped to 47%, while Ethereum's share has risen to 18%.

Market research firm FundStrata says the narrative of cryptocurrencies is shifting from Bitcoin to Ethereum, setting a price target of $10,000 for Ethereum this year. FundStrata is bullish on Ethereum because new financial applications are being developed on the Ethereum network, which has grown significantly in size over the past year. These applications generate about 3 times the fees for the Ethereum network as Bitcoin, which has a market cap 3 times greater. FundStrata also expects Bitcoin to reach $100,000 this year, and the total market cap of digital currencies to reach $5 trillion.

Bitcoin contributes less than 5%, 90% of this company's profits come from Ethereum

Just like when the market value of Kweichow Moutai reached 3 trillion in early February this year, smart money has already begun to increase its allocation of other stock assets. When the price of Bitcoin once approached the astonishing $70,000, more and more funds are also flowing into Ethereum instead of just buying Bitcoin.

On May 3, Nasdaq-listed digital payment technology company Mogo announced that it had purchased approximately 146 Ethereum at an average price of $2,780. Mogo plans to invest 5% of its cash and portfolio value in cryptocurrencies. The company has already invested in Bitcoin and has acquired approximately 18 Bitcoins on the open market so far, with an average transaction price of $33,083.

Meitu, a Hong Kong-listed company that spent 600 million yuan to invest in digital currency, has a very forward-looking investment strategy in digital currency. It did not put its bets on Bitcoin, but instead made Bitcoin, which has already risen sharply, its second largest asset, and Ethereum its largest asset. This is obviously different from traditional "leeks" - those small retail investors who simply equate Bitcoin with digital currency.

According to Meitu's investment cost, this Hong Kong-listed company holds a total of 31,000 Ethereums, with a holding cost of approximately US$1,480. As of the morning of May 5, 2021, the unit price of Ethereum exceeded US$3,330, which means that Meitu's profit on Ethereum is as high as US$57.35 million, equivalent to RMB 371 million.

In terms of Bitcoin investment, the average price of Meitu's Bitcoin holdings is about $52,653 per coin, and Meitu holds a total of 940.1 Bitcoins. As of the early morning of May 5, 2021, the price of Bitcoin remained around $54,800. In other words, Meitu's profit on Bitcoin is about $2 million, which is equivalent to RMB 12.94 million.

Overall, Meitu's 600 million yuan investment in digital currencies yielded a total profit of 384 million yuan, of which Ethereum contributed 96.6% of the profit and Bitcoin contributed only 3%.

Why does a weakening Bitcoin still attract enough attention?

Although Bitcoin's ability to contribute profits in the short term has been greatly weakened, this does not mean that Bitcoin's attractiveness has completely lost to Ethereum.

To understand this problem, we need to look at Kweichow Moutai like A-share investors do. Although Kweichow Moutai has caused many investors who chased high prices to suffer heavy losses after its sharp rise, as long as the price of Kweichow Moutai drops sufficiently, it will attract more investors to re-enter.

For many A-share fund managers, the performance of Kweichow Moutai is not just about the stock price performance of one or two quarters. Although many fund managers admit that holding Kweichow Moutai may not make money in the short term, or even underperform those holding other stocks, according to the quarterly reports of fund companies, well-known fund managers including Zhang Kun, Liu Yanchun and Wang Zonghe still gave Kweichow Moutai a sufficient proportion of holdings in the top ten holdings at the end of the first quarter of this year.

The mentality and strategy of the above-mentioned A-share fund managers in holding Kweichow Moutai are exactly the same as the mentality of large institutions continuing to hold Bitcoin. Although the price of Bitcoin seems too high and the upward elasticity may continue to lag behind in one or two quarters, these institutions still regard Bitcoin as their main asset.

On April 30, MicroStrategy, a US-listed company, released its first quarter 2021 financial report. The financial report showed that it purchased a total of approximately 20,857 bitcoins for US$1.086 billion in the first quarter of 2021, with an average purchase price of US$52,087 per bitcoin.

This also includes Tesla CEO Musk, who has a special liking for digital currency. In the first quarter of this year, he invested $1.5 billion in the digital currency market. This $1.5 billion was not diversified, but all was bought in Bitcoin. Obviously, as Musk, who has a deep understanding of the digital currency market, is strong in Ethereum, but he still only buys Bitcoin. This reflects Musk's personal investment understanding, and the A-share fund managers know that Kweichow Moutai will not outperform other second-tier blue chips in one or two quarters, but these fund managers still put a very large proportion of investment in Kweichow Moutai.

Many Bitcoin and Ethereum margin trading accounts have been liquidated

It is worth mentioning that in the recent month when Ethereum rose sharply and Bitcoin continued to fall, the digital currency market also saw large-scale liquidations.

Obviously, a basic common sense is that buying Bitcoin and Ethereum itself will not cause a margin call, just like an A-share investor who buys Kweichow Moutai will not face a margin call. However, if the investor buys Kweichow Moutai at a price of around 2,500 yuan with a 10x leverage - as of now, Kweichow Moutai has fallen to around 2,000 yuan, then the 10x leverage held by the stock investor will inevitably lead to a margin call if no additional margin is added.

The collapse of Bitcoin and Ethereum was also caused by investors’ high-leverage trading.

China Securities Journal reporters noted that as of the morning of May 5, 2021, a total of 142,292 people had their positions liquidated in the last 24 hours, with a total liquidation amount of US$1.02 billion, equivalent to RMB 6.6 billion. Of the above-mentioned US$1.02 billion liquidation amount, the largest liquidation came from shorting Bitcoin, with Bitcoin's financing account liquidating about US$247 million, followed by Ethereum's financing account, which liquidated US$230 million. Ripple's financing account ranked third, with a liquidation amount of US$46.21 million.