Global assets are looking for anchors in the crisis, which may be the starting point of Bitcoin's eternal bull market

On the afternoon of April 2, the Biyin Mining Pool organized an online live broadcast conference "Seeing the Flood Again". In the opening session of "Global Financial Analysis", Biyin founder Pan Zhibiao asked several sharp questions to Primitive Ventures founding partner Wan Hui, MakerDAO China head Pan Chao, PayPal Finance CEO Yang Zhou, and Bixin Mining CEO Liu Fei.

We have selected four particularly interesting questions. Their thoughts may change your views on the Bitcoin halving bull market, your understanding of Bitcoin's safe-haven properties, your understanding of the 312 crash, your rethinking of the performance of public chains, and your reflection on the high leverage behavior that is prevalent in the cryptocurrency world.

▲From left: Yang Zhou, Liu Fei, Pan Zhibiao, Wan Hui (video), Pan Chao (video)

Question 1: How long will it take for the global epidemic and central bank money printing to take effect on the cryptocurrency industry?

Liu Fei: The free Bitcoin market is particularly prone to stampedes

This kind of flooding will not affect the cryptocurrency market all at once. Its impact will gradually extend from one field to another. First, the liquidity of US assets such as US bonds and US stocks will show some performance, while alternative assets such as Bitcoin will perform relatively slowly.

U.S. bonds, stocks, and Bitcoin all face a problem, which is that their prices are supported by very small amounts of money. For example, the stock market may look very high, such as $1 trillion, but there is actually only $10 billion of liquidity behind it. Judging from the current situation of U.S. stocks, its liquidity is supported by hedge funds, but the leverage ratio of hedge funds is very high.

This time, everyone felt that the economic crisis was coming and needed cash, but no one had money. What should we do? Sell assets, but when an asset worth 10,000 yuan is sold for 100 yuan, no one will buy it. This is a liquidity crisis.

Today, the Fed's unlimited QE has challenged many concepts. People used to think that US debt was risk-free, but today the interest rate on US debt has become 0, which will cause the market to doubt the original pricing model of commodities. Today, funds still dare not be used boldly (to buy assets), mainly because there is no confidence. The crisis has stopped many hedge funds, which has further caused a liquidity crisis. This time, US Treasury bonds and stocks have no liquidity, and no one is willing to take over.

In the cryptocurrency world, the deleveraging of Bitcoin was very rapid and brutal, as we have all seen. Because there is no circuit breaker mechanism, no central bank, and no method of replenishing liquidity, this free market is particularly prone to stampedes.

Of course, the purpose of QE is to provide liquidity. Slowly, when the mainstream US market improves, it will eventually return to alternative assets such as Bitcoin. It will take some time, but I am still very optimistic that it may not take as long as a year.

Wan Hui: Bitcoin is a highly speculative financial asset and will not quickly become a beneficiary of monetary policy

We can see that after the 2008 economic crisis, the central bank lowered interest rates to zero, and then QE was implemented. We can see that the growth of US GDP is far slower than the growth of asset market value. This shows that in the past 10 years, the US dollars released by the Federal Reserve have not flowed into the world economy or into areas that can bring high production growth, but have all entered the financial asset sector. This is also a problem for the whole world.

Friends on Wall Street say that 2000 was the Internet bubble, 2008 was the real estate bubble, and 2020 is the bubble of everything.

We also see that traditional financial assets actually have a lot of leverage. Looking at the current asset composition of U.S. stocks, more than half of the stocks are in the hands of ETF funds, and 70% of the assets are in passive investments, so the entire financial market is very "leek".

The U.S. stock market is an unprecedented bubble. Now there is a problem: no one knows how to price the assets in this crisis.

I think Bitcoin is a highly speculative asset as a financial asset. When do people start to accept high-risk assets? It must be when there is more spare money and the economy is relatively bubble-prone. The epidemic has a very big impact on employment in the United States. It is conservatively estimated that 10% of the total population will face unemployment. This will inevitably drag the economy into a technical recession, and there may be two quarters of negative GDP growth. So, the first thing everyone considers is to protect employment, jobs, and normal life, rather than investment.

Then, a highly speculative financial asset like Bitcoin will not become a beneficiary of monetary policy so quickly.

After asset liquidity is restored, real estate, stock markets, and marginal assets generally rise. In this process, participants' ability to bear investment risks becomes higher and higher, and the entire financial asset bubble becomes larger and larger.

Question 2: ETH plummets, DAI liquidity is in short supply, can DeFi continue on this path?

Pan Chao: DeFi has fallen into the trap of high leverage operations, and its foothold should be the settlement layer

We can see that the ETH crash this time required the recovery of DAI for liquidation, resulting in a short-term shortage of DAI liquidity. Some positions were not successfully liquidated, and the system had bad debts. There are two reasons for this: one is the shortage of liquidity in the market itself, and the other is the congestion of the Ethereum network. Its transaction fees have even reached 20,000 to 30,000 times higher than normal transactions.

This phenomenon also occurred during CryptoKitties and ICO, but there is a big change this time, that is, too much USDT was issued on Ethereum, and leveraged trading and margin trading used USDT. Everyone is buying USDT, which has brought unprecedented congestion to Ethereum. DeFi is very dependent on the network performance of Ethereum. If the network is congested, DeFi applications will not be able to quickly settle.

I think this incident is a big test for DeFi, especially a concentrated reflection on the performance of the Ethereum network.

At present, I think DeFi has reached a misunderstanding, that is, high leverage operation, which is exactly the opposite of the original intention of DeFi. Bitcoin was born in the financial crisis, so it is different from the original intention of Bitcoin. However, people tend to pursue high leverage. The foothold of DeFi products should be the settlement layer, which is not a network for trading or margin trading.

Question 3: As USDT moves out of the cryptocurrency circle and enters the foreign trade circle, will it replace Bitcoin and become the "global currency"?

Yang Zhou: As long as crypto finance is not restricted by the banking and financial system, there will always be room for development

The popularity of stablecoins does not harm Bitcoin, but allows cryptocurrencies to enter a more mainstream field.

I think that after two more halvings, Bitcoin’s volatility may become a financial product second only to the U.S. dollar, and it may become a very good payment tool. But at present, it is more like a speculative product, and people will be more likely to accept assets like USDT.

USDT is currently mainly used in the cryptocurrency circle, but recently we have noticed that it has been used in some cross-border transactions. Whether this will become widely used depends entirely on the development of finance.

Currently, populism is on the rise and a process of deglobalization has emerged. As long as crypto finance is not restricted by the banking and financial system, there will always be room for it to play, but it depends on the development of the entire political economy.

Liu Fei: USDT is widely used in the Chinese community and it has brought in new users

A few years ago, Amazon merchants used Bitcoin as an intermediary to transfer money back and forth. Now, including trade between China and Southeast Asia, everyone chooses to use USDT for circulation. It should be said that USDT has been used very much in the Chinese community. For example, Chinese merchants in Spain and Italy use Bitcoin and USDT to transport money to China.

USDT’s original role in Bitcoin has indeed been weakened, but we must also see that some people originally did not accept the high volatility of Bitcoin, while stablecoins brought new users.

But there is a problem. How much is the stablecoin worth? First of all, it depends on how much is the main chain it is based on? If the value of the assets circulating on the main chain exceeds the value of the main chain, then there may be problems. How much value can the main chain carry?

During this crash, Ethereum was completely blocked, Bitcoin did not produce a block within 50 minutes, the OTC channel was cut off, and no one could cover their positions. Therefore, Bitcoin and Ethereum need to have strong performance and sufficient value. In the long run, the growth of these stablecoins will promote the audience and value of Bitcoin and digital currencies.

Wan Hui: USDT will not be replaced by compliant USD currency

I don't think USDT will be replaced by compliant USD coins.

1. Many times people use USDT in order to reduce the cost of compliance fiat currency and banking system, so it will not be replaced in the long run.

2. Many people may be skeptical about USDT because it is not 100% guaranteed by reserves and there is a risk of running away. But its value is reflected in liquidity. Don’t worry about 100%. USDT has become a mobile symbol in the circulation process and will continue to exist for a long time. Coupled with the network effect, it is also difficult to be replaced by other stablecoins. USDC was born very well, and it may have distanced itself from the other 3-6 stablecoins, but there is still a big gap with USDT. I am not very optimistic about compliant stablecoins.

Pan Chao: Stablecoins will be a "three-legged" situation

We know that USDT is used in Southeast Asia and Russia in a gray area. In the field of e-commerce and payment, they are reluctant to use USDT because it carries regulatory risks.

In other words, stablecoins will be a "three-legged tripod". In the white world, regulated stablecoins will appear; in the gray world, USDT will always exist, it has a network effect; in the native world of cryptocurrency, there will be native stablecoins. But it will take time to see the prosperity of native stablecoins.

Question 4: BCH will halve in a week, and BTC will halve in a month. Will the halving come?

Yang Zhou: At the end of 2021, it is optimistically expected to be the craziest time

We should have confidence in cryptocurrencies and Bitcoin. The halving market has been going on for a few months after the halving, reaching its peak 18 months later. It is optimistically expected that the end of 2021 will be the craziest time.

Before the halving, it was all stories and hype. Before and after the halving, there will definitely be important deleveraging events. Only after deleveraging can the market be as light as a swallow and rise slowly.

Liu Fei: Assets are looking for anchors, and institutions that truly allocate Bitcoin may be coming soon

Every halving will not lead to an increase for no reason.

The first time was the economic crisis, the Cyprus crisis, which brought a lot of exposure to Bitcoin and also brought a large number of users.

The second time, the first crazy regions were Japan and South Korea. In Japan, cryptocurrencies began to follow the compliance route. In South Korea, it was because of the North Korean nuclear crisis. At that time, 20,000 bitcoins in China were sold for 30,000 in South Korea. I asked Koreans who have experienced this period of history why they bought Bitcoin. It turned out that Seoul is very close to North Korea, and houses are easily attacked by missiles. There are also restrictions on Koreans buying US dollars, and gold is heavy and not easy to carry. There was no other way, so they found Bitcoin.

This time, we say that it is the third time that assets are looking for an anchor. I once talked to someone from Bridgewater, and he was very optimistic about digital currency and believed that Bitcoin would soar in the next 2-5 years. Why? He said that there is a lot of money in pensions, stocks, and ETFs, but its liquidity is very low. With the arrival of aging, everyone will sell stocks, causing a crash, and many assets will crash.

Then, we need to find an anchor for the third time, which means that in the future, institutions will be forced to choose assets like Bitcoin. They are not trading institutions, but family funds and mutual funds. They are here to hedge risks. They will allocate and hold Bitcoin instead of trading. During this halving period, we may see such a story.

Wan Hui: The halving is "wishful thinking", and the bull market may come later than before

Now let’s look at the Bitcoin halving situation. There have been two major structural changes this year.

1. The last halving, the trading market was dominated by spot trading. Today, it is dominated by futures and derivatives markets. 2. Bitcoin was born during the last financial crisis, but it has not experienced a financial crisis. It is still a very speculative alternative asset in the eyes of most institutions. We see that these institutions come in (to the currency circle) to trade, not to configure and hold Bitcoin.

These two structural changes have led to our "wishful thinking" about this halving cycle.

The competition in the mining industry is very fierce. It is a global energy arbitrage. If your energy costs are not low enough, simply expecting the halving to come in is a very bad investment behavior in itself, especially if a lot of leverage is involved.

My view is different from that of Fei Ge. The previous two bull markets were basically bull markets of the US stock market. The peak of the US stock market was 2-3 months earlier than the peak of Bitcoin.

We are in the midst of several overlapping economic cycles. If a global economic recession occurs, the bull market may come later than before.

There is another difference. Previously, the spot market dominated, and there would be a large number of unilateral rising trends. Now the futures market dominates, and once the long-short ratio is abnormally high, a large number of positions may be liquidated. In other words, prices will repeatedly return to the mean value.

In general, I think the magnitude and rate of increase in this halving market will not be as fast as before.

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