Securities Daily | Behind the Bitcoin price breaking through $20,000: a large influx of retail investors, and multiple trading platforms are stuck or down

Source: Securities Daily

Reporter: Xing Meng

Experts warn that Bitcoin prices are susceptible to large fluctuations due to the influence of market makers and government policies. Ordinary investors should not blindly follow the hype.

"The price of Bitcoin (hereinafter referred to as Bitcoin) broke through 20,000 US dollars, setting a historical high!" On the evening of December 16, this sudden market situation caused the currency circle to boil.

Blockchain media outlets took out their long-prepared posters or articles and swiped their social media accounts. In their eyes, $20,000 was an expected price, and they were ready for this moment as early as last month when Bitcoin was $19,000.

On the other hand, the $20,000 Bitcoin price has stimulated a large number of individual investors to enter the cryptocurrency market. Reporters have learned that many cryptocurrency trading platforms have experienced lags or downtime. This wave of institutional capital-driven gains is quietly changing, with individual investors increasing their stakes and the market heat continuing to rise.

The Bitcoin price has repeatedly hit new highs, which also reflects the market enthusiasm. After breaking through $20,000, the Bitcoin price soared all the way to $23,000 on December 17, and the total value of Bitcoin exceeded $400 billion.

Traffic on some trading platforms increased 30 times

For the cryptocurrency world, December 16 is a day worth remembering.

That evening, Bitcoin broke through $20,000 for the first time, setting a record high price. According to the cryptocurrency market website CoinMarketCap, at around 21:50 Beijing time on December 16, the price of Bitcoin broke through the $20,000 mark, setting a record high price since the birth of Bitcoin 11 years ago.

From the initial fair price of Bitcoin at $0.0025 on May 22, 2010 to $20,000, the price of Bitcoin has increased by 8 million times in 10 years.

It is precisely because of its significant "wealth-creating" effect that Bitcoin is sought after by many investors. Institutional funds are also a major driving force behind this rise.

OKEx Research Chief Researcher told the Securities Daily reporter: "The latest data shows that the total holdings of Grayscale Fund's GBTC products have reached nearly 570,000 bitcoins, compared with 360,000 holdings at the beginning of June, an increase of 58% in less than half a year. This shows that in the second half of this year, a large amount of institutional funds began to flow into the Bitcoin field."

It is reported that the primary market subscription of GBTC products is only open to qualified investors. According to its third-quarter financial report, 80% of its customers are institutional investors, which is an indicator for observing the entry of institutional funds.

The reporter learned that on the evening of December 16, when the price of Bitcoin broke through the 20,000 US dollar mark, a large number of individual investors began to flock into the cryptocurrency market, causing several cryptocurrency trading platforms such as Binance and Huobi to experience lag or downtime.

It is understood that in the evening of the same day, Zhao Changpeng, CEO of the well-known trading platform Binance, tweeted that the platform's traffic had increased 30 times and encountered some expansion problems and delays, which have now been fixed and more servers will need to be added in the future.

In this regard, the above-mentioned chief researcher believes that this indicates that the main investors in the market may undergo structural changes, shifting from institutional investors to individual investors. The market's excitement and enthusiasm are further amplified, which may lead to large fluctuations in Bitcoin prices. It is hoped that market investors will remain rational and not increase leverage at will.

Improved policy environment boosts coin prices

In addition to the entry of institutional funds, the improvement of the regulatory policy environment in various countries is also an incentive for pushing up Bitcoin prices.

Gu Yanxi, founder of Liyan Consulting Company, analyzed to the reporter of Securities Daily that recently, Singapore and Hong Kong, China have respectively approved compliant cryptocurrency trading services, and institutional investors and high-net-worth clients in these two regions can participate in Bitcoin transactions in a legal manner.

In the US market, CME plans to launch futures trading based on Ethereum next year, and PayPal has begun to provide Bitcoin buying and selling services to its users. These factors have led the market to expect that a large amount of funds will flow into the Bitcoin trading market, thus pushing Bitcoin to a record high.

In China, Bitcoin transactions are strictly regulated. On January 17, 2018, the Payment and Settlement Division of the Business Management Department of the Central Bank issued the "Notice on Carrying out Self-Inspection and Rectification of Payment Services Provided for Illegal Virtual Currency Transactions", which clearly stated that "it is strictly forbidden to provide services for virtual currency transactions, and effective measures should be taken to prevent payment channels from being used for virtual currency transactions". Since 2018, all 173 domestic encrypted digital currency transactions and token issuance and financing platforms have exited without risk, and the rectification effect is very obvious.

From a legal perspective, Bitcoin is recognized as online virtual property and is protected by law.

Ding Feipeng, director of the criminal department of Beijing Luning Law Firm, told reporters that a recent case involving Bitcoin property damage compensation was selected as an outstanding case in the national court system in 2020, which is of typical significance. The judgment of the case held that Bitcoin has the attributes of virtual property and virtual goods and should be protected by law. The judgment of the case has been recognized by the Supreme People's Court for its determination of the property attributes of Bitcoin and judicial relief for Bitcoin-related cases. Its typicality and guidance will also have a far-reaching impact on the national court system in the future trial practice of Bitcoin-related cases.

However, the price of Bitcoin fluctuates greatly and is not suitable for ordinary people to invest in.

Ding Feipeng explained: "Compared with ordinary commodities, Bitcoin has its own characteristics, such as it is not issued by the central bank or any financial institution, it is used in large quantities by speculators, it is relatively less used in the retail and commercial markets, it is traded all day long, there is no limit on the rise and fall, and its price is easily affected by the market makers and the policies of various governments and fluctuates greatly. As an ordinary investor, you should invest prudently according to your risk tolerance."