The floodgates are open. How much of the $1.9 trillion flood will flow into Bitcoin?

The floodgates are open. How much of the $1.9 trillion flood will flow into Bitcoin?

From the mid-March last year when the Federal Reserve launched its policy of unlimited money printing for the U.S. dollar, to the $1.9 trillion White House fiscal relief budget that was just passed at the end of February this year, it is estimated that more than 60% of the excess dollars have overflowed the U.S. dam like a flood and spread to all parts of the world... The COVID-19 pandemic has brought the global economy into an era of excess dollars.

With spare money such as fiscal subsidies, American retail investors gathered on social platforms and slaughtered Wall Street capitalists; investors began to buy real estate, pushing up housing prices; although many economists and officials suppressed their anxiety about inflation, or even tried to tout the already inflated U.S. stocks and bonds, long-term market interest rates continued to rise. According to Harvard University economist Summers, the risk of a significant change in inflation expectations has reached the highest level since the 1970s, which is likely to trigger a disorderly decline in the U.S. dollar. U.S. stocks and bonds also became uneasy, and the market stumbled...

A week ago, the Financial Secretary of Hong Kong said that the stamp duty on stock transactions would be raised, and the market quickly responded downward; and Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, clearly warned of the risks of real estate speculation, indicating that the decisiveness of mainland China in regulating the property market should not be underestimated. The road for excess US dollars to disrupt the Hong Kong stock market and the mainland property market has already been blocked, so where will it lead the economic chaos?

Bitcoin, which has just passed the trillion-dollar mark, seems to be able to absorb enough dollars and become a reservoir for excess dollars. So, how much excess dollars can Bitcoin absorb?

Compared with the untraded stock, the market transaction scale of Bitcoin is still too small. From the perspective of the scope of transaction participation, its transaction structure is not broad enough. In particular, the ratio of institutional transactions to holdings is low, or even due to various reasons such as laws, it can only be traded and held in the name of individuals, which has many potential legal risks. Compared with the transaction structure, the holder structure of the stock is more problematic, and the holding share is seriously inclined to large households, which results in the limited market force of marginal transaction prices. It can be seen that the transaction demand of the huge stock is in a long-term and serious state of suppression. This greatly restricts Bitcoin's ability to absorb excess US dollars.

As a digital asset, Bitcoin is like a huge sponge that can never be completely soaked. The surface layer is full of water, and it squeezes out excess water from time to time, while the inside is a huge dry part without water. The "water" is the bank currency, and the completely "dry" part is the huge amount that has not been traded by the bank currency. The latter is just "stored" there as an asset stock and is not involved in the transaction.

If this part can be entrusted to a banking institution and used as an effective mortgage or exchanged for bank currency, then currency transactions can be bypassed and the liquidity of bank currency can be directly affected; similarly, if credit cards are connected, so that the relevant Bitcoin can enter the circulation field such as consumption through credit card repayments, etc., the limitations of the current narrow trading surface can be overcome. Therefore, if the regulatory authorities and the banking system take the initiative to make corresponding positive arrangements, then Bitcoin will no longer be just a pure digital asset transaction, and the wealth effect it brings will no longer be fragile.

It should be said that if Bitcoin can absorb enough excess US dollars, no one seems to have any major objections, and it will be a great blessing for the global economic system. The problem is that it is difficult to do so based on the current Bitcoin holding and trading structure. The absorption of a large amount of excess US dollars will inevitably trigger a wave of selling and cashing out, which will in turn trigger the collapse of Bitcoin prices. The large amount of excess US dollars absorbed will mainly come from institutional investors, who not only have huge transaction amounts, but also will not choose to hold for a long time, but will buy, cash out, buy again, and cash out again from time to time, which will amplify market fluctuations and make its price fragile...

Even if the price rises by "two steps forward and one step back", the one step back is enough to make people shudder. It should be said that the excess US dollars will only exacerbate the violent and high-frequency turbulence in the Bitcoin market. If new investors cannot be attracted to buy and hold Bitcoin in a long-term and stable manner, then its price will inevitably fall. The fact that Bitcoin can stand at a high point of $50,000 means that its peak of absorbing excess US dollars has appeared, and the climax of individual investors flocking in to buy Bitcoin will not reappear. Of course, this does not affect the high-frequency turnover rate of Bitcoin transactions, and its market activity will continue...

If the price goes up, does it mean that the value of Bitcoin has gone up? Then, when the price plummets, does the value of Bitcoin also shrink rapidly? Discussing the value of Bitcoin without considering the market price is empty, incomprehensible, and overly ideological. As a crypto asset, Bitcoin provides an unprecedented investment option. Given its established market position, its price trend is determined by its market supply and demand. This indicates that the market divergence between those who hold Bitcoin for a long time based on value belief and those who choose to hold it on a discretionary basis will increase.

Realistically, some Bitcoin holders choose to cash out as soon as the time is right, while others choose to hold for the long term. Most do both, adjusting their structure of long-term holding and timely cashing out at any time. For large Bitcoin holders, the initial cost is extremely low, the holding cost is zero, and they have more proactive options, and there is no difficulty in choosing a strategy. In other words, the price of Bitcoin will ultimately be determined by market demand.

Overheated Bitcoin transactions have caused concerns, suspicions, and even vigilance among regulatory authorities and other departments or industries. A month ago, the new U.S. Treasury Secretary Janet Yellen criticized and warned Bitcoin of "illegal financing", "low application efficiency" and "high speculation". The market has responded positively to this, but of course the voices of criticism from opponents are endless. Let's reverse the deduction. If Yellen expressed support for investing in Bitcoin when Bitcoin stood firm at $50,000, such as "If there is nothing good to invest in, investing in Bitcoin is not bad!" If this statement is made, it will be like adding fuel to the fire. How will the market react? Excess US dollars may quickly break the market, triggering a huge amount of stock to sell, bringing about drastic price fluctuations and declines, which may pierce the Bitcoin market and bring about a large-scale financial panic. Because of this, the regulatory authorities, feeling the pressure of responsibility and obligation, chose to speak frankly and issue a warning...

Excess dollars indicate that the dollar will weaken. Investors will naturally look for alternatives to the weakening dollar, and will naturally look for Bitcoin. If Bitcoin cannot absorb more dollars, the excess dollars will move to the next target. At this point, the excess dollars have only brought about a new wave of Bitcoin market adjustments...

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