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After hitting an all-time high of $41,940 on January 8, the price of Bitcoin entered a high-level oscillation state.
On January 23, according to Bitcoin news website Coindesk, the price of Bitcoin was about $32,000. On the previous day, the price of Bitcoin once fell below the $30,000 mark, falling to a low of $28,845, a drop of 17.83% from the highest price of the day. Two days ago, Bitcoin was still at a high of more than $37,000.
"Bitcoin is now a highly speculative product, and there is a high degree of leverage in the market that can be used to trade Bitcoin. So its large fluctuations up and down are normal," said Gu Yanxi, founder of the U.S. Lijian Consulting Company and researcher in the blockchain and encrypted digital asset industry.
Yu Jianing, rotating chairman of the blockchain committee of the China Communications Industry Association and president of Huobi University, also said that Bitcoin is a highly financialized digital asset. Any financialized product will rise and fall, and price fluctuations are very normal. In the rising market in 2017, the price of Bitcoin experienced several sharp corrections of 20% to 30%. After Bitcoin quickly rose from $10,000 to $42,000, a deep correction is almost inevitable. If calculated from $42,000, a 30% correction is about $30,000.
Rapid rise and cumulative decline risk
Since late October 2020, Bitcoin has entered a phase of crazy growth. On January 2 and January 8, 2021, Bitcoin reached US$30,000 and US$40,000 respectively.
Li Lianxuan, chief researcher at OKLink Research Institute, said that Bitcoin is a high-risk asset and the only way for investors to get returns is the rise in Bitcoin prices, so it is easier to form a speculative bubble. In the past month, Bitcoin has risen to $40,000 in a short period of time, which has accumulated a lot of risks.
Xu Tong, senior analyst at Huobi Research Institute, further analyzed that the rapid increase in Bitcoin prices has led to a large number of profit-taking orders accumulated in a short period of time, and the exit of profit-taking orders will also trigger a decline. In addition, the recent high leverage ratio and overheated market have also accumulated potential risks of decline.
Yu Jianing also mentioned these two points. He believes that there are two main reasons for the direct decline. One is the miners' selling, and the other is the profit-taking of some overseas investors. First, there is a large amount of selling among the miners. For example, according to statistics from a blogger, in the past 10 days, 44,997.45 bitcoins, about 1.4 billion US dollars, have flowed out of the wallet of the well-known Bitcoin mining pool F2Pool. On the other hand, some of the large amount of profit-taking accumulated by overseas institutions in the early stage also took profits, resulting in a relatively large retracement of Bitcoin prices.
"In addition, many retail investors choose to use higher leverage multiples for investment. Before the decline, the funding rate of Bitcoin perpetual contracts has been at a high level for a long time. When the market leverage ratio is high, once there is a price correction, some high-leverage positions will be liquidated, which will accelerate the decline." He said.
The United States sends regulatory signals
There is also a view that this round of decline in Bitcoin may be related to the regulatory signals released by the United States recently.
Yu Jianing said that the Biden administration's official inauguration can be said to be an indirect reason for the decline of Bitcoin, because from the perspective of the macroeconomic environment, one of the reasons for Bitcoin's rise this year is the continued decline of the US dollar index. The US dollar has continued to rebound recently, and global commodity assets have experienced a sharp correction, and the digital asset market has also adjusted accordingly. On the other hand, after the Biden administration came to power, it froze the rule-making procedures of all existing institutions for further review, including the proposed rules of the US Financial Crimes Enforcement Network (FinCEN) for non-custodial crypto wallets, which means that the proposed crypto wallet rules will be further reviewed, and regulatory uncertainty has increased.
On January 19, the U.S. Senate Banking Committee held a hearing on the nomination of 74-year-old Yellen as U.S. Treasury Secretary. In her speech, Yellen mentioned that cryptocurrencies are "worrying" and said that "cryptocurrencies are a special focus for terrorists in terms of financing and money laundering."
After that, Bitcoin happened to fall for three consecutive days. On January 20, the price of Bitcoin fell from over $37,000 to below $35,000. On January 21, it fell below $32,000, and on January 22, it fell below $30,000.
Li Lianxuan believes that with recent market rumors that the Federal Reserve may exit its loose monetary policy in the future and the newly appointed U.S. Treasury Secretary claiming to strengthen supervision of digital currencies, the market entered a panic stage and subsequently plummeted.
Xu Tong also pointed out that Gary Gensler was nominated by Biden as the chairman of the U.S. Securities and Exchange Commission (SEC). His regulatory style is relatively radical, and cryptocurrencies may usher in stricter regulation. Secondly, Yellen, the nominee for U.S. Treasury Secretary, also stated that cryptocurrencies need to be regulated, which may dampen some investors' optimism about Bitcoin.
But Gu Yanxi said: "There is a view in the market that the decline of Bitcoin today is due to Yellen's speech. I don't think this is necessarily the real reason. If it is, it is also a misunderstanding of Yellen's position."
He pointed out that Yellen had mentioned in her written response to her nomination, "I believe it is very important that we consider the benefits of cryptocurrencies and other digital assets and their potential to improve the efficiency of the existing financial system. "If I am appointed, I plan to work closely with the Federal Reserve and other federal banking and securities regulators to study how to implement effective regulation of these technologies and other financial innovations."
In fact, before Yellen, the US government was generally skeptical of cryptocurrencies. Former US Treasury Secretary Mnuchin said at a press conference in July 2019 that digital currencies such as Bitcoin have been used to support illegal activities worth billions of dollars, such as cybercrime, tax evasion, extortion, drug trafficking, and human trafficking. Then-US President Trump also said on social media in July 2019 that he was not a fan of Bitcoin and other digital currencies. Digital currencies are not currencies. Their value is based on air and fluctuates violently. Unregulated digital assets will encourage illegal activities such as drug trafficking.
Future regulatory trends
"The logic of global monetary easing remains, but supervision is also becoming stricter. The trend depends on the outcome of the game between the two." Xu Tong said when talking about the future of Bitcoin.
What is the trend of Bitcoin regulation?
Gu Yanxi said that Bitcoin is still in a very controversial stage. In the US market, Bitcoin regulation is still in its early stages. There are compliant Bitcoin derivatives trading venues in the market, but Bitcoin has not yet been recognized by regulators as a mainstream trading product. Even Bitcoin-based ETF applications have been rejected by the SEC. Due to these restrictions, institutional funds cannot easily participate in the buying and selling of Bitcoin in large quantities.
"If global financial regulators can work together to regulate Bitcoin as Lagarde proposed, then Bitcoin transactions will be recognized and further regulated. Bitcoin transactions will be conducted within the scope of the new regulatory system." Gu Yanxi said that after being included in the supervision, Bitcoin will be traded in compliant exchanges and derivatives exchanges, and price fluctuations will be greatly reduced.
Regarding the future price changes of Bitcoin, Yu Jianing said: "Bitcoin and other digital assets have been highly financialized, so the price is unlikely to escape the cyclical law: if there is a rise, there must be a fall, and if there is a fall, there must be a rise. Therefore, market fluctuations and adjustments are likely to continue, but the overall fundamentals and trends have not been substantially reversed." |
