After China closed the exchange, the price of Bitcoin soared 50%, which has alarmed the IMF

Ever since China banned ICOs and shut down Bitcoin exchanges, I have seen many slightly sad and emotional articles. The more of these articles I read, the more confused I may become about understanding the future market.

Recently, one of my favorite economists and a very pragmatic macro analyst, Kenneth Rogoff, former chief economist of the IMF (International Monetary Fund), speculated in an article for the British newspaper The Guardian that in the long run, blockchain technology will thrive, but the price of Bitcoin will collapse.

The IMF has always hoped to reshape the global monetary system to maximize the convenience of global trade. Almost all people who have worked in the IMF have global thinking and feelings, but the IMF has always been greatly influenced by the United States and puts American interests first, so it is difficult to make big changes. Just two days ago, Zhou Xiaochuan, governor of the People's Bank of China, said in an exclusive interview with the domestic "Caijing" magazine that the inclusion of the RMB in the basket (IMF Special Drawing Rights SDR) is a historic progress in the process of opening up to the outside world. China has always supported the IMF to lead the construction of the future international monetary system and promote the internationalization of the RMB in a more credible way.

At the beginning of this year, Rogoff repeatedly expressed his views, calling on the United States, especially Trump, not to launch a trade war against China. He said that the United States cannot really "win" the trade war with China because any form of victory means a high price. The United States needs to negotiate with China to protect its Asian allies and deal with North Korea, which is prone to problems. Now it seems that he is right.

Before analyzing the recent trend of Bitcoin prices, I have said a little more, but I think it is very necessary. If we look at it from a global perspective, we must pay attention to the voices of some decentralized and influential institutions, especially organizations like the IMF, which are dedicated to studying the problems of the international monetary system.

As Bitcoin becomes increasingly difficult to be ignored by the currency market, more opinions are worth savoring. At a forum held by the Bank of England last week, IMF Managing Director Lagarde expressed many views on future currencies and digital currencies. She mentioned that the IMF Special Drawing Rights have the potential to become future digital currencies. Whether SDR can replace the existing international currency is questionable, but it is not an unreliable assumption. Lagarde believes that it is very likely that the future currency will come from the hands of the IMF, the maintainer of the global monetary system.

Will the future currency be "IMF" coin, Bitcoin, or still the US dollar?

Lagarde also mentioned that it may not be wise to shut out virtual currencies, as our next generation may find that they are no less effective than existing currencies and central bank policies in many ways. Lagarde also believes that virtual currencies do not currently threaten legal tender and central banks, but may overcome many of the current technical challenges in the future, may be more convenient and stable than some legal tender, and may be more popular as a payment method, which may subvert the banking service model and force the central bank to expand its regulatory scope.

On September 4 this year, the People's Bank of China, together with several ministries and commissions, issued an "Announcement on Preventing Risks in the Issuance of Tokens and Financing". After that, the ICO market quickly cooled down, and the price of Bitcoin began to fall from over $4,600 to less than $3,000 on September 15. During this period, almost the entire world was paying attention to the Chinese government's next attitude towards Bitcoin.

By September 15, all exchanges announced that they would shut down all trading on September 30 and October 30, respectively, and the price of Bitcoin had basically reached the bottom. From September 4 to September 15, within just ten days, the price of Bitcoin denominated in RMB fell by nearly 50%, and the price of Bitcoin denominated in US dollars also fell by more than 30%.

The key point of the problem is not here, but since the news of China's closure of Bitcoin exchanges landed, the price of Bitcoin has entered a rebound trend. The price of Bitcoin denominated in RMB has rebounded by more than 50% since September 15. Why did the bad news become good news?

In fact, the plunge in Bitcoin prices that began after the People's Bank of China banned ICOs on September 4 was not necessarily caused by China's regulation, because on September 2, just before September 4, the price of Bitcoin broke through 32,000 yuan and then began to fall. On September 2 and 3 alone, the overall decline in Bitcoin prices was close to 10%. If there had been no news of China's ban on ICOs, a phased correction in Bitcoin prices might have been inevitable.

However, since the news of the closure of domestic Bitcoin exchanges on September 15th was settled, Bitcoin prices have seen a new round of gains, which is worth noting. Many investors believe that the price rebound is due to the reduction of the influence of the Chinese market and the continued rise in international market prices. This is indeed true, but it cannot fundamentally explain the rebound, and it is difficult to get any inspiration from it, and it is impossible to form an effective observation of the future market.

The rise in prices is undoubtedly an increase in demand, and the increase in demand, especially the rapid expansion of demand in a very short period of time under huge negative factors, requires consideration of many special factors.

Many people mistakenly believe that China's closure of Bitcoin exchanges will severely damage the confidence of Bitcoin investors, causing concentrated selling and causing the price to fall. However, Bitcoin is dominated by a virtual currency ecosystem, and the logic of the existence of this ecosystem is based on a lot of trust. In other words, before Bitcoin technology is cracked, China's ban on ICOs and the closure of Bitcoin exchanges actually means that the government has forcibly eliminated Bitcoin's competitors from a future perspective, causing more funds to return to the Bitcoin market.

Those investors who previously participated crazily in ICOs and speculation on small currencies have to return to the Bitcoin market and become long-term holders, because other small currencies, except Bitcoin, have hardly experienced the days without exchanges. Without exchanges, the liquidity of most small currencies is facing exhaustion, and the motivation of ordinary investors to participate is rapidly declining, but Bitcoin is not the case. In the days without exchanges and ICOs, Bitcoin has successfully operated for more than five years, which is far beyond the reach of Ethereum and other currencies.

In summary, this big rebound in Bitcoin prices is actually a big risk-averse move for investors in the entire cryptocurrency circle. On the one hand, under the strong supervision of the Chinese government on ICOs and on-site transactions, investors' demand for Bitcoin has experienced a tidal return; on the other hand, speculators' panic selling of many other small currencies has further consolidated Bitcoin's risk-averse properties among virtual currencies. Many foreign exchanges have had to remove some small currencies that had previously had good trading volumes, because after China closed Bitcoin exchanges, the trading volumes of more small currencies have further shrunk and become "dead coins."

The price trend of Bitcoin depends on many factors. Some regulations are obviously negative, but some regulations can turn out to be positive. If we consider factors at the government level, we should not only consider the attitude of Bitcoin, but also its actions. However, the action itself is a result. Being able to predict future actions from attitudes and opinions is something that an investor needs to consider all the time. This is why I spent a lot of time talking about the views of IMF economists and President Lagarde in the previous article.

Those who can directly influence global monetary policies, when paying attention to Bitcoin, what they worry about and what they recognize is directly related to future global joint supervision issues. Just like the People's Bank of China has always been worried about illegal Bitcoin transactions, money laundering and other issues, and finally shut down the Bitcoin exchange. The main reason is this.