Bitcoin reappears on a "roller coaster" market: plummeting 30% in a few hours, then rebounding to thousands of yuan

On January 5, Bitcoin broke through its all-time high and once approached 9,000 yuan. In 2016, its growth rate exceeded 200%, which was unrivaled by any investment product. At the beginning of the new year, this impressive trend continued. However, on the evening of the 5th, it plunged rapidly during the trading session, once reaching 6,000 yuan. The sharp rise and fall made this "safe haven newcomer" quite questionable. On the same day, the "dovish remarks" of the Federal Reserve boosted gold, which had already stabilized after oversold. The three factors of the first quarter's rising pattern, the expectation of the "black swan event" in Europe, and the holiday effect between China and India have once again enhanced the safe-haven function of gold. With the fluctuation of the RMB exchange rate and the increase in the risk of economic fluctuations in some countries and regions, the risk aversion sentiment may be rekindled at the beginning of the new year.

Introduction

Blockchain technology will ultimately only be a component of the central bank’s digital currency system management tools. This policy expectation is somewhat misleading in terms of its “positive” effects on Bitcoin.

As a representative of electronic currency based on blockchain technology, Bitcoin hit a new high in its eight-year history in the early morning of January 5, 2017, once again shocking the market.

It is worth mentioning that in November 2013, Bitcoin rose from 800 yuan to a high of 8,000 yuan in just one month, a 10-fold monthly increase. However, after the central bank and five other ministries issued corresponding regulatory notices, Bitcoin fell all the way and entered a bear market that lasted nearly two years.

However, whether the rise back to 8,000 yuan this time is a replica of the short-term rise three years ago, and what kind of adjustments it will face in the future; and whether the central bank's current research on the promotion of blockchain technology under digital currency can provide actual support for the intrinsic value of Bitcoin have all sparked heated discussions in the industry.

However, on January 5, Bitcoin experienced a flash jump immediately after breaking through the historical high. According to the market information of Huobi.com and OKCoin, two well-known domestic trading platforms, the highest price of Bitcoin exceeded RMB 8,800 during the trading session, and then quickly plunged to around RMB 7,100, a drop of more than 20%. However, the decline gradually narrowed, and the price remained at around RMB 7,900. At 21:00 in the evening, there was another small drop, breaking through the $1,000 mark, and the lowest reached RMB 6,000, with a drop of 30%. As of press time, the price was quoted at RMB 6,770.

Different from the previous round of growth

If we observe the monthly price line of Bitcoin, we can find a huge U-shaped market trend. This is because Bitcoin fell from a high price of 8,000 yuan three years ago, and now it has reached 8,000 yuan again, and the market's understanding of it is also different.

Huobi COO Zhu Jiawei believes that compared with the 8,000 yuan level in November 2013, many market conditions have changed significantly today.

"First of all, the current volume of Bitcoin transactions is incomparable to that of the past, about 37 times that of the past. When Huobi's highest price was 8,000 yuan in 2013, the weekly trading volume was 393,000 Bitcoins, and the weekly amplitude reached 103%. The trading volume is very small and is greatly affected by funds." Zhu Jiawei said, "When it broke 8,000 yuan again today, Huobi's trading volume in the four days after New Year's Day was 7.35 million Bitcoins, which is expected to double in a week, which is 37 times the trading volume of that year. The price amplitude in the four days after the holiday was 15.95%, which is much more stable than that of that year."

The daily fluctuations in the price also show that the daily fluctuations in this round of Bitcoin market are further stabilizing.

"(This round) Bitcoin's daily fluctuations were less than five days with a 10% or more increase or decrease, while in 2013, the daily fluctuations were often around 10%." Zhu Jiawei also said: "In the first 24 hours before the price broke through 8,000 yuan again, Bitcoin's trading volume was almost the same as the previous period, at around 2 million per day, and the trading volume was around 17 billion yuan per day. Judging from the daily trading volume, users are relatively calm."

A private equity firm that uses programmatic strategies to invest in Bitcoin said that compared with the "10-fold increase in January" three years ago, the high trading volume brought about by the expansion of the circulating stock and the introduction of programmatic trading are also the reasons for making this round of rising curve smoother and more stable.

"The expansion of the circulating market brought about by continuous mining over the past three years has made it difficult for holders to control the market on trading platforms, and the price of Bitcoin is also difficult to be driven by a large number of exchanges in a short period of time." The investment manager of the private equity institution said, "On the one hand, the buying and selling behavior of programmatic trading has increased the liquidity of Bitcoin and made its pricing curve smoother."

The proportion of programmatic trading on some Bitcoin platforms supports this logic. The reporter learned from a person close to Huobi that 80%-90% of the platform's transactions come from programmatic trading.

After reaching a high of 8,000 yuan, industry insiders are also keeping a wait-and-see attitude as to whether Bitcoin will repeat the plunge three years ago in a short period of time. Xu Mingxing, founder and CEO of OKCoin, said that the subsequent trend of Bitcoin is difficult to predict, but he also pointed out that this round of Bitcoin's rise is more stable than the previous round.

"From the perspective of trading rules, over-rising and over-falling behaviors are unstable, and investors need to be cautious about price increases. However, compared with the process of forming that price peak, this year's rise is more stable, and compared with 2013, the number of participants in the global Bitcoin market has also expanded a lot." Xu Mingxing said.

However, the sudden intraday plunge also brought great uncertainty to the stable rise of Bitcoin.

In the view of Cai Zhiwei, an analyst at OKCoin, since the price of Bitcoin has accumulated a large amount of profit-taking after a series of short squeezes, the sharp drop in the intraday trading on January 5 was the result of concentrated cashing out of profit-taking.

"The current market's bullish confidence has suffered a severe blow, and it has also dampened the bullish enthusiasm of most investors, and it will be difficult for market confidence to recover in a short period of time. Therefore, investors are advised not to blindly increase their positions to buy at the bottom. In terms of operations, they should mainly adopt a light-position short-term operation strategy and patiently wait for the market to give clearer signals." Cai Zhiwei said.

In Xu Mingxing's view, the current resurgence of Bitcoin is the product of the accumulation of upward momentum since the decline at the end of 2013.

"From the perspective of the trading market, investment products follow the law that long-term declines will inevitably lead to increases, and long-term increases will inevitably lead to declines. From the perspective of Bitcoin's cycle, this price increase is the result of a long-term accumulation after the price peak in 2013. In addition, Bitcoin has been in existence for 8 years since 2009, and the user population has increased, but the amount of Bitcoin used is limited. The deflationary nature of Bitcoin has led to the rise in Bitcoin prices."

Is blockchain’s benefits misleading?

It is worth mentioning that the recent recognition of the blockchain base is also seen as one of the reasons for the rise in Bitcoin prices.

"Bitcoin's value has been recognized by more people, which is also one of the reasons for its price increase." Zhu Jiawei believes that "Bitcoin and blockchain technology have been increasingly widely used. Bitcoin can be used as a means of payment in some countries around the world, and Bitcoin blockchain has been used for applications such as issuing stocks and document registration. The overall application of blockchain has also started to develop this year. These have driven the overall upward trend of Bitcoin prices from 2016 to the beginning of 2017."

"The recognition of the underlying blockchain technology has indirectly increased the popularity of Bitcoin, but what will affect the price of Bitcoin in the long run is investors' confidence in Bitcoin," Xu Mingxing also said.

However, some analysts close to the regulatory authorities pointed out that the central bank's digital currency is not the same as Bitcoin, and blockchain technology will ultimately only be a component of the central bank's digital currency system management tools. This policy expectation of "good news" for Bitcoin is somewhat misleading.

"The central bank's promotion of digital currency is more conducive to promoting regulatory functions, ensuring the legitimacy and transparency of capital flows and the effectiveness of monetary policy," said a non-bank financial analyst at a medium-sized brokerage in Beijing. "Since it emphasizes regulatory functions, it will be fundamentally different from Bitcoin. The biggest difference is that it will be a centralized currency system, while Bitcoin is decentralized and unregulated."

"Therefore, the logic of inferring that the central bank's promotion of digital currency is beneficial to Bitcoin is more on the emotional level and is itself somewhat misleading," said the aforementioned analyst.

In the view of some blockchain technology experts, even if blockchain technology is used to build the central bank's digital currency system, there will still be some problems.

"The issuance of digital currency will also have some corresponding problems. After issuance, the central bank may directly control commercial banks and local people's banks on how to better exercise their functions. If blockchain is used for issuance, timeliness and performance will also be a major impact, but this will not hinder the development of digital currency." said Yan Bin, general manager of the solutions department of Hang Seng Electronic Banking Treasury Management Division.

“Digital currency is not entirely blockchain. Even if blockchain is widely used, it should not be used to endorse the value of Bitcoin,” the aforementioned analyst emphasized. “What really affects the price of Bitcoin is still determined by the supply and demand level.”