Jiang Zhuoer: How much money is needed for Bitcoin to rise to $100,000?

Author: Jiang Zhuoer

Today we will discuss a basic (but many people misunderstand) financial knowledge point: the relationship between funds and total market value .

The reason for writing this article is that I saw a typical cognitive error in the comments:

1. Can you answer it correctly?

Let me ask you a question first:

A stock fund holds several stocks with a net value of 10 billion. If the fund gives you a 50% discount and sells you the entire 5 billion (including the stocks) , would you be willing to buy it?

Give you 1 minute to think

Is it a great bargain to spend 5 billion to buy stocks worth 10 billion?

The answer is: you have to first look at what stocks the fund holds.

Is there any difference in value between stock A with a market value of 1 billion yuan and stock B with a market value of 1 billion yuan?

Of course there is a difference, and it may be very different. This is a concept we want to mention: virtual market value .

2. Virtual Market Value

If you have 100 million stocks at a price of 10 yuan per share, is that worth 1 billion yuan in real money (red area)?

No, no, no, there is a huge difference between stocks (or altcoins) with a market value of 1 billion yuan and 1 billion real cash .

If you were to sell these stocks with a market value of 1 billion on the market, the actual money (the red part) you would get in return might be far less than 1 billion.

There are a limited number of buy orders at each price in the market.

If you want to sell 100 million shares, only 3 million shares may be willing to buy at 10 yuan, and 5 million shares at 9 yuan. The lower the price goes, the more buying orders there are. You may have to sell at 2 yuan to sell all 100 million shares. After selling all the shares, you only get 300 million in cash .

So where did the remaining 700 million yuan of "wealth" go? No, no, no, this 700 million yuan is just a fictitious value, and it has never been real money. Multiply the last transaction price of 10 yuan per share by the number of 100 million shares, and the total market value of 1 billion yuan is obtained. The difference between this and the real 1 billion yuan in real money can range from 1% to 99% . The larger the proportion of 100 million shares in the total share capital, the greater the percentage difference. If there are only 110 million shares in total, selling 100 million shares is enough to knock down more than 90% of the price.

“Total market value” is just a statistical value, not real money.

This is an important point of knowledge in economics. There is a more vivid way to say it:

Price is three-dimensional

3. How to make money using virtual market value

In fact, it is very simple. Just use the statistical value of "total market value" to exchange for the real money of people with low cognition . For example, in the example given at the beginning, how did the fund get the 10 billion stocks? It may be that the fund only spent 3 billion yuan to buy and control a few stocks and gradually made them .

Let's review this chart again. Since the stock with a market value of 1 billion can only be sold for 300 million real money in the end, it means that if you spend 300 million real money to gradually accumulate shares, as the degree of control over the market becomes higher and higher, you only need to spend a small amount of money to push up the total market value .

However, in the end, the 1 billion market value was created, but it was just virtual. If it was sold again, only 300 million real money could be sold, which was a waste of time . What should I do?

It's simple. These stocks are gradually bought with funds, and the funds are sold to retail investors with low awareness: Look, my fund (altcoin) is of high quality, and it makes a profit of 20% every year. The fund now holds stocks with a market value of 10 billion yuan. If I sell it to you 10 billion real money , you won't lose money.

See? This is the consequence of not studying hard and improving your cognitive abilities. You are sold without knowing how you were sold.

4. How to increase the virtual market value

In fact, it is very simple, the key is just one point: control degree/locking degree .

Therefore, platform coins/POS coins/model coins all like to play with lock-up. You have to hold XXX coins to get some benefits (such as fee reduction). After a large number of coins are locked, only a small amount of funds can bring up a very high market value .

Whenever you see this pattern, you must be clear: the market value brought about by this unified lock-up behavior is very fictitious. Once the locked coins rush out and trample on each other, not to mention being cut in half, it can easily cut one's ankle .

What’s more interesting is that if this lock-up is done spontaneously by many people, then this “virtual” value may be very “real” , the most typical example being housing prices. From a transaction perspective, housing prices are actually very virtual, especially under low transaction volumes caused by purchase restrictions and high transaction taxes in large cities. For example, the total number of residential properties in Shanghai is 9.13 million, and the annual transaction volume of second-hand residential properties in 2018 was 160,000, which means that for every 100 houses, only 1.8 were traded, and these 1.8 traded houses determined the prices of the remaining 98.2 houses. From a transaction perspective, this is undoubtedly very virtual .

But in fact, the housing price is as solid as a rock under the market consensus. A large number of smart people choose to store their wealth in real estate that cannot be re-issued due to the excessive issuance of legal tender. Under the low transaction volume (equivalent to high lock-up) caused by the purchase restriction and high tax policies (in the name of combating real estate speculation), the housing price has been pushed up to an astonishing level . In the upward channel, the price is not only as solid as a rock, but also keeps rising.

5. How to increase the virtual market value of Bitcoin

Bitcoin itself is a currency with a naturally high degree of lock-up. A large number of coins were lost in the early days, and many coins were later in the hands of die-hard coin hoarders. In addition, the size of Bitcoin was extremely small in the early days, so it created an astonishing increase in multiples : 583 times after the first halving, and 129 times after the second halving.

In the past, die-hard coin hoarders had a painful problem - they had to spend money in fiat currency, and it took a lot of perseverance not to sell the coins to improve their lives when the price rose. There was an interesting thing in the last bull market. When the price of the coin was 6,000 RMB, I borrowed a lot of money to mine and hoard coins, but an early veteran of Sihai (formerly known as P2PBUCKS, now called TumbleBit), sold the coins for 6,000 RMB and bought a Mercedes-Benz .

Don’t be fooled by Sihai’s current bullish attitude, saying “eternal bull market is coming” on the left and “don’t wait until the market goes up to regret it” on the right. In fact, it is just psychological overcompensation:)

I can judge the cycle position and only invest without consumption - I still don't have a driver's license, I rely on Didi to go out, and I live in a rented house - but most people are ordinary people like Sihai, who just stepped into the cryptocurrency circle by chance. They can neither accurately judge the current cycle position nor delay gratification and resist consumption . Therefore, although diehards hoard coins, in the long run, they will still sell coins because of the need for consumption and the sharp rise in the price of coins to improve their lives, reducing the lock-up degree .

In this round of bull market, an important financial tool has finally matured - mortgage coin loans . Although there were also mortgage coin loan platforms in the last round of bull market, such as CHBTC.com's 8R.com and Huobi's pawnshop (dangpu.com), I also borrowed money from them, but after all, the market was small and immature, and later both platforms were closed.

In this round, some more professional mortgage loan platforms have finally emerged, such as Wu Jihan's new financial company Matrixport.com and Zhao Dong's RenrenBit.com. In the past, although diehards were nominally wealthy, they could only watch but not use the coins, and most of the positions were losses when selling coins for consumption - Sihai's Mercedes-Benz is already worth a high-end Ferrari, and it will not be difficult to worth a Bugatti Veyron in the future - but now diehards have a new choice: mortgage coins for borrowing and consumption.

For another major short seller: miners selling coins to pay electricity bills, a new option has also emerged. When the electricity bill accounts for a low proportion, miners can choose to mortgage coins to borrow money to pay the electricity bill, thereby greatly speeding up the speed of hoarding coins .

6. Security of Mortgage Currency Loans

6.1. Security of Coin Price

In this regard, it is better for die-hards to borrow money for consumption. Even if daily consumption is a bit extravagant, it will not cost much money. Try to rent instead of buying big items (buying a car or a house). The leverage ratio is very low. Enjoy it well, and it can also greatly improve your mentality and hold on to the currency .

The main risk is that miners borrow money to pay electricity bills (or buy mining machines):

First of all, once you use leverage, you must be prepared for forced liquidation, but you must take the initiative to liquidate rather than be forced to do so . For example, if the platform stipulates that the position must be liquidated at a 90% collateral ratio (and the remaining residual value after the liquidation belongs to the platform), it is best to proactively deposit USDT before 90% to avoid an additional loss of 10%. Some platforms have a more tricky liquidation line (for example, 85%), so you must take the initiative to liquidate. You should treat active liquidation as an active stop loss, and don't keep replenishing coins after the price drops .

Secondly, the essence of using collateralized coins to borrow electricity is: actively balance when losing (limited to 20%~30%), and never balance when rising (earn excess profits of dozens of times the price of coins) . In fact, as long as the price of coins rises, the previously pledged coins (better than selling them immediately) have already recovered, and the remaining coins that rise further are pure profit. Depending on the platform, you can choose to withdraw excess collateralized coins, or borrow more money. In short, don't leave extra coins on the platform .

6.2. Platform Security

The most important thing about the platform is transparency: you can see where your coins are stored . The same is true for individual lending. It is best to use a 2/3 signature wallet, with a trusted middleman on both sides holding a private key to ensure that the other party cannot arbitrarily misappropriate the coins. If this is not possible, at least make sure that the coins are kept in a certain address and not moved .

The reason for this is that some patterns in the market are very dangerous :

1. Some unscrupulous platforms do not have a source of borrowing funds, but instead make money out of nothing: after getting the mortgaged coins, they sell 65% of them to the mortgagor, and then use the remaining 35% of the coins to simulate the coin holding position through a combination of futures or options. The reliability of this simulation is very low, and the position may be wiped out at any time with the emergence of black swans (violent fluctuations, platform disconnection, high futures premiums and discounts, exchange loss sharing, and bankruptcy) .

2. Some platforms or funding parties will lend the collateralized coins to others for a second time to increase interest income. However , there is no safe way to earn coins with coins in this world - note that there is no way - any way to earn coins is accompanied by considerable risks. Otherwise, if 20 million coins are invested in earning coins, can 22 million coins be earned? This means that the lent coins may not be recovered at all after increasing by dozens of times.

Therefore, you must be able to see where your coins are. If you can't see it, it's better not to borrow it. If you must borrow it, you must agree on a way to withdraw the coins after the price goes up (or increase the loan). In this way, if there is a risk, the maximum loss is a few tens of percent , instead of the coin price rising several times and the funding party telling you that your coins are gone because of XXX unexpected bad debt.

VII. Conclusion

1. "Total market value" is just a statistical value, a fictitious value, not real money.

2. Increasing the “lock-up degree” is an important means to push up the “virtual market value”.

3. Developed mortgage coin loans can reduce “die-hard consumers selling coins” and “miners selling coins to pay electricity bills”, and increase the lock-up degree in the bull market.

4. Mortgage coin loans inject external funds that will not be used to buy coins into the blockchain market through mortgage loans.

So, how much money is needed for Bitcoin to rise to $100,000?

It’s hard to calculate, but the required capital multiple will be less than before because the lock-up degree has increased:)