Bitcoin has finally returned to $8,000, but why do some people not recommend chasing the rise?

Author: Wang Lin

The stock market cooled down, but the currency market rebounded.

Starting from May 10, the price of Bitcoin has been rising. On May 11, the price of Bitcoin exceeded $6,900; on May 12, the price of Bitcoin exceeded $7,500; on May 13, the price of Bitcoin exceeded $7,800; on May 14, the price of Bitcoin exceeded the $8,000 mark, and on that day "Bitcoin rose above $8,000" became a hot search on Weibo; as of press time, the price of Bitcoin exceeded $8,100, more than doubled compared to the lowest point last year.

Bitcoin K-line chart of a certain exchange since March 2 this year

All signs indicate that the world's largest cryptocurrency by market value is experiencing a recovery, and other cryptocurrencies have also seen small increases.

In the past day, cryptocurrencies such as EOS, ETH, Litecoin, and Ripple also showed varying degrees of growth. On the Huobi platform, ETH increased by as much as 13.35% and EOS increased by as much as 9.78%.

The rapid increase exceeded the expectations of many people in the cryptocurrency circle who were calling for a bull market every day. Yang Linyuan, partner of DFund, said, "From a technical analysis, we thought that $6,200 was a very difficult point because there were many locked-in shares near this point and there would be huge selling pressure, but we did not expect that the price of the coin would not fall back but rose to $8,000 without a breakout."

Everyone wants to know what is the real reason behind this surge in Bitcoin prices. Some people are eager to take action in the face of the rising trend, forgetting the tragic situation when Bitcoin prices fell off a cliff last year.

Reason 1: USDT crisis, BTC becomes a safe haven option

By combing through the Bitcoin price timeline, it is not difficult to find that this surge originated from the USDT crisis.

USDT is a "stable currency" issued by Tether. Tether promises that for every USDT issued, there is a guaranteed $1 in the bank. Users can exchange legal tender for USDT to trade on exchanges. USDT has become a better benchmark than Bitcoin and a good value-preserving token. Its market share in the stable currency field was once close to 90%.

Tether's parent company is called iFinex Inc. In addition to Tether, the company also operates an exchange called Bitfinex. Bitfinex is the world's fifth largest exchange and the world's largest USD BTC trading platform. In this way, the entire crypto world is linked to the USD world through Finex Inc.

However, at 4:15 p.m. local time on April 25, the New York State prosecutors brought Tether and its parent company iFinex Inc. and Bitfinex to court. The indictment stated that under the manipulation of the actual controller of iFinex Inc.:

· USDT issuer Tether’s affiliate Bitfinex had $850 million in funds of customers and businesses frozen, making it impossible for customers to withdraw cash;

To fill the loophole, Bitfinex "embezzled" $850 million from Tether;

· Issue additional USDT through Tether as reserve.

"This means that USDT is not 100% accepted, which leads to panic about USDT. Many people therefore sell USDT in exchange for BTC for risk hedging, causing the price of BTC to rise." DFund partner Yang Linyuan told Ran Finance.

Subsequently, Bitfinex launched a solution to deal with the crisis - issuing $1 billion of LEO for IEO (Initial Exchange Offering, which refers to the issuance of tokens with an exchange as the core; the tokens skip the ICO step and go directly to the exchange), and the funds raised from this IEO will be used as working capital during the period when "850 million US dollars were frozen by the US government."

It is worth noting that all LEOs were subscribed with USDT, and it took Bitfinex only 10 days to complete the subscription. "A large amount of USDT was frozen on this, so it pushed up BTC further."

The founder of hpool mining pool, Brother Chong, expressed a similar view. He said: Before 1994, in the digital currency trading ecosystem, stable currency was legal tender, but after 1994, legal tender was a one-size-fits-all approach without any substitutes. Bitcoin became legal tender in digital currencies and was used to trade various altcoins. Therefore, Bitcoin rose sharply after 1994, but with the launch of USDT, USDT replaced legal tender in digital currencies, and the demand for Bitcoin was not so strong. This time when USDT had an accident, it was obvious that many funds chose to hedge and exchange back to Bitcoin.

But USDT is just a prelude.

Reason 2: Geopolitics, stock market crash

Geopolitical factors have become a very important trigger for this round of surge.

"From a technical perspective, $6,200 is a difficult point, and there are many trapped orders at this point." DFund partner Yang Linyuan said that this means that when the price of the currency exceeds $6,200, there will be a pullback caused by large-scale selling.

But the fact is that Bitcoin did not experience a pullback. Instead, it continued to advance with unstoppable force, quickly breaking through the $7,000 and $8,000 mark. "After $7,000, there are not so many trapped shares."

In the view of DFund partner Yang Linyuan, this is mainly due to the friction between the world's two largest economies, which directly led to the stock market crash.

On May 14, the Nasdaq recorded its largest single-day drop so far in 2019. The S&P 500 closed down 69.53 points, a drop of 2.41%; the Dow Jones Industrial Average closed down 617.38 points, a drop of 2.38%; and the Nasdaq Composite closed down 269.92 points, a drop of 3.41%.

At this time, digital gold Bitcoin has become the best choice. Bitcoin has some value scales similar to gold, which makes Bitcoin better than legal tender in terms of storage value and better than gold in terms of liquidity. "Compared with gold, Bitcoin is a better safe-haven option." Yang Linyuan, partner of DFund, said, "Whenever there is turmoil in any economy, there will be large-scale buying and price increases. This time, the two largest economies in the world are in turmoil, so the impact is even greater."

In fact, in some major political events in some countries and even the world, Bitcoin has indeed demonstrated the attributes of a safe-haven asset.

In April 2013, the Cyprus incident broke out, and Bitcoin soared from more than 30 US dollars to 265 US dollars in just a few days. In June 2016, when the news of the UK's successful vote on "Brexit" came out, the price of Bitcoin instantly rose from around 550 US dollars to 650 US dollars.

"The rise and burst of the entire bubble resonates with geopolitical tensions and easing," said veteran Bitcoin investor Nightcat (nickname btcnightcat) in an interview with Babbitt in 2018.

Lars Seier Christensen, former CEO of Saxo Bank and founder of Concordium, who has successfully profited from Bitcoin trading, noted: "There seems to be a correlation between trade headwinds and rising Bitcoin prices. Clearly, some investors are buying Bitcoin out of fear."

However, some people disagree with this view. Xu Kun, vice president of OK Strategy, said that the escalation of Sino-US frictions has indeed accelerated the rise of BTC and is also the main factor in the rapid breakthrough of $8,000, but it is not the fundamental reason for the overall market.

Reason 3: Mainstream market recognition, more favorable factors

In her opinion, the market has entered a recovery period since the beginning of this year and the fundamentals are positive.

At the end of January, Germany’s second largest stock exchange, Boerse Stuttgart, announced that it had officially launched the cryptocurrency trading application Bison, which will list digital currencies such as BTC, XRP, ETH, and LTC.

In March, Bloomberg and the New York Times reported that Facebook is developing a new cryptocurrency that can be used for global payments. At the same time, many Internet institutions and financial institutions such as JP Morgan and Fidelity Investments are accelerating the layout of virtual digital currency custody transactions.

In May, Kelly Loeffler, CEO of Bakkt (a crypto asset trading platform developed by Intercontinental Exchange, the parent company of the New York Stock Exchange), said in a medium blog that Bakkt is "working closely" with the U.S. Commodity Futures Trading Commission (CFTC) and will launch a test Bitcoin futures contract in the summer.

This shows that mainstream institutions are completing their layout in the market. In the view of Yu Jianing, president of Huobi University, this is one of the core reasons for the current rise in coin prices. He said that as blockchain technology has become more mature, the value of decentralized digital assets represented by Bitcoin has been increasingly recognized. "Currently in the United States, relevant policies and laws are also being improved, supervision is becoming clearer, and mainstream institutions including large financial institutions and Internet companies have also begun to enter the market."

Judging from the data, the improvement of the law has alleviated investors' concerns to some extent. According to the latest survey by Fidelity Investments, more than 50% of US institutional investors currently believe that digital assets can play a role in their investment portfolios, and 22% of institutional investors already own some form of digital currency.

In the view of Xu Kun, vice president of strategy at OK, USD accounts for the majority of the recent BTC capital inflows, with a high probability of overseas funds entering the market. It can also be seen that the main force this time is a professional operating team with a large amount of funds and the cooperation of the exchange, which can drive the market wave after wave in the short term.

In addition, another good news is that the Consensus Conference will be held from May 13 to May 15. This conference is held by Coindesk, a well-known blockchain media and research company. The conference was first held in 2015. After the Consensus conferences from 2015 to 2017, the prices of Bitcoin and other cryptocurrencies have risen. Therefore, Consensus is also considered one of the important indicators of the cryptocurrency industry.

With good news coming out frequently, Bitcoin has gained recognition from mainstream institutions, which may be another factor driving the rise of Bitcoin.

Four surges and plunges

Looking back at the history of Bitcoin development, it has experienced four surges and four plunges.

In mid-2011, Bitcoin experienced its first surge, with its price rising from $0.95 to $32 in just two months. Bitcoin became a wealth myth for the first time, and the pioneers of the cryptocurrency circle, Li Xiaolai and Yang Linke, entered the market at this time.

At that time, the Bitcoin and British Pound exchange trading platform was launched. At the same time, some mainstream newspapers in the United States began to report on Bitcoin. As soon as the news came out, investors around the world flocked to join the ranks of cryptocurrency speculation.

However, a few days later, Bitcoin began to fall all the way, and a month later, Bitcoin had fallen below $10. In February 2012, Bitcoin had fallen to around $2, with the highest decline reaching 94%.

Some analysts said that the reason for the plunge was that there were not many Bitcoin players at the time and the trading depth was insufficient, so a large sell-off could lead to large fluctuations in the currency price.

In 2013, Bitcoin officially embarked on a crazy journey.

By the end of April, the price of Bitcoin had risen from about $20 at the beginning of the year to about $260. If we extend the line further, from the end of 2011 to May 2013, the price of Bitcoin increased 1,000 times.

This round of bull market was first caused by the trust crisis in traditional financial institutions caused by the Cyprus debt crisis, and then stimulated by the Bitcoin-friendly policies introduced by some European countries in the second half of 2013. As a result, more people became aware of Bitcoin, and many speculators flocked in.

Soon, Bitcoin began its second plunge. According to a price fluctuation chart at the time, after Bitcoin reached $260, it fell all the way, falling below $50 in just a few days, to a low of more than $40, a drop of 80%.

Some analysts said that the plunge was caused by a small bug in the Bitcoin mining software during an update, which caused the then largest exchange Mt.Gox to suspend Bitcoin withdrawals, causing traders to panic and sell off.

In fact, as the price of Bitcoin rises, its fluctuations become more and more thrilling.

Seven months after the crash, in December 2013, the price of Bitcoin reached as high as $1,200, a 365% increase from the previous highest price. There was even a Bitcoin player who almost slept in front of the door of the exchange for the convenience of trading. He directly used his bank card to let the exchange staff swipe the card to pay for him. That month, he made 2 million yuan a day.

Immediately afterwards, the People’s Bank of China and five other ministries and commissions issued a “Notice on Preventing Bitcoin Risks.” As soon as the notice was issued, the price of Bitcoin in China was halved from $1,200 to $600 that day, evaporating 50% in one day!

Since then, due to the Bitcoin security issues caused by the "Mentougou Incident" and regulatory policy reasons, the price of Bitcoin has been fluctuating and falling. It was not until January 2015 that Bitcoin finally stopped falling at $150. This decline was also the longest decline in Bitcoin, with the highest decline of 87%.

However, Bitcoin soon reached its peak.

In 2016, Bitcoin first rose by an astonishing 160% like a monkey climbing a tree. On January 5, 2017, it set a new record high, rising to $1,249 per coin.

Even though the People’s Bank of China and seven other ministries and commissions jointly issued the “Notice on Preventing Risks in Token Issuance and Financing” on September 4, it did not prevent the rise of Bitcoin in the general direction. On December 7, Bitcoin once broke through the $19,000 mark, which is the highest price in Bitcoin’s history.

Some analysts said that this round of Bitcoin surge was driven by capital inflows from Japan and South Korea. For example, among the top 50 digital currencies in the currency market, the Korean won trading volume basically accounts for more than one-third, and the higher the proportion, the greater the increase.

Soon, Bitcoin began to fall off a cliff. Starting in the second half of 2018, Bitcoin fell from its peak to $3,200, with a market value loss of 81%. Other competing coins fell by about 90%.

The BCH fork war was the trigger for this round of plunge, but the fundamental reason was the proliferation of air coins, and the cryptocurrency circle urgently needs to return to rationality.

The future is uncertain, don't chase the rise

Looking back at history, it is not difficult to find that sharp rises and falls have almost become the norm for Bitcoin. Wang Wen, a senior person in the currency circle, told Rancaijing (ID:rancaijing) , "From a long-term perspective, the recent fluctuations are nothing, and old investors basically think so."

But this still cannot prevent large-scale capital from entering the market. According to CMC data, as of 11:45 on May 15, the total transaction volume of global digital currencies in the past 24 hours was US$107.763 billion, breaking through US$100 billion to set a record high.

In the past 7 days, the net inflow of funds in the digital currency field

Even so, the market has not really recovered. BlockVC founder Xu Yingkai said that BlockVC's sentiment index has shown that market sentiment has recovered well in the past two days, but it is too early to judge whether market sentiment has reversed. "Bitcoin and other digital currencies have only been around for ten years, and many analysis tools and strategies are still not feasible due to missing data and unclear fundamentals. Market sentiment needs further confirmation." He said, "However, digital assets as a whole, especially Bitcoin, are on the road to recovery."

DFund partner Yang Linyuan told Ran Finance that there are two possible trends for Bitcoin in the future: the price of the currency may fluctuate, and after a sharp correction, it will rise in small steps and exceed 10,000 within the year; if it is a downward trend, the price of Bitcoin may also fall below 6,000, but it will be more difficult.

Many interviewees told Ran Finance that Bitcoin is expected to rise to $10,000 by the end of this year. But even so, we still need to be cautious when chasing the rise.

This first starts with the blockchain technology behind Bitcoin.

From the perspective of currency properties, Bitcoin could actually be used as a means of payment at first, but because the price of the currency fluctuated too much and the transaction speed was too slow, it did not develop into a payment tool.

Specifically, the processing speed of the Bitcoin network using blockchain technology is about 7 transactions per second, the peak of Alipay reaches 90,000 transactions per second, and the buying and selling speed of interbank settlement is nearly 70,000 times per second.

In actual applications, such a speed can easily cause serious network congestion and a large number of transaction queues, making it impossible for blockchain to be implemented in high-concurrency business scenarios, and even simple payments are a problem - this is currently the biggest problem in the implementation of blockchain technology.

The second biggest problem is that many well-known blockchain projects are only at the proof-of-concept stage.

The so-called proof of concept is actually the cooperation between enterprises and project parties to add blockchain technology to a certain scenario, and then prove whether blockchain technology can achieve application effects.

"If a company wants to use blockchain, it can't just purchase it, install it and use it. Blockchain is a decentralized, distributed system that is promoted by multiple parties," said Lu Xujun of Wanglu Technology. No one is willing to change the existing interest structure, which means that the technology cannot be promoted.

As for when there will be a major technological breakthrough, no one knows the answer.

Blockchain technology itself is progressing slowly, but does that mean Bitcoin has no value?

Blockchain expert Hong Shuning believes that Bitcoin is digital gold, has the functions of storing value and a payment tool, and is also a stable currency in the cryptocurrency market. This has never changed and will not change.

Chen Weixing said that in his opinion, Bitcoin is valuable because many people have a common vision - to make Bitcoin an anchor in the future digital economy era and a yardstick for measuring different values, equivalent to digital gold.

Liu Changyong, director of the Blockchain Economic Research Center of Chongqing Technology and Business University, told Ran Finance that cryptocurrency will definitely replace legal tender and become the world currency, but the road will be tortuous. "Looking at the next 30 years, the world currency may not be Bitcoin, BCH is more likely, but it may also be a new variety. There is still a long way to go, and there are still many variables."

At present, it seems that the only thing that can increase the value of Bitcoin is its "digital gold" function. But the key point is that Bitcoin is not as strong as gold. In the currency circle where there is no rise and fall and speculators are everywhere, Bitcoin is now more like a tool for speculation.

You still need to be cautious when chasing the rise of Bitcoin.

*Some pictures in the article are from the Internet.