Bitcoin celebrates its 8th birthday with a record high, surpassing gold price again

Xiao Min (pseudonym), a junior student this year, recently discovered that the price of bitcoins she once bought for 200 yuan per coin has now risen to more than 7,600 yuan per coin, close to its price at its craziest period at the end of 2013.

In early 2013, Xiao Min, who was still in her second year of high school, began to get in touch with Bitcoin. At that time, Bitcoin had just entered the public's field of vision in China, and 200 yuan was already the highest price in history. In the following year, Bitcoin entered a roller coaster market, with the price first breaking through 7,500 yuan per coin, and then plummeting to less than 3,000 yuan. Xiao Min did not choose to increase her position, but abandoned her Bitcoin account. Unexpectedly, in just over two years, Bitcoin "returned to its glory".

Bitcoin adopts a 24/7 trading model. According to data from the Bitcoin market website Btc123.com, as of 8 p.m. on Wednesday, the price of Bitcoin had risen to 7,820 yuan per coin, an increase of 170% in the past year and an increase of 1,000 yuan in the past 20 days alone.

Since September last year, the volume of Bitcoin transactions has suddenly increased. According to statistics from the foreign website Bitcoinity.org, the average daily transaction volume of major Bitcoin trading platforms around the world has increased from 600,000 to the current 6 million, and once exceeded 13 million. Among them, the three platforms from China, Bitcoin China, Huobi.com and OKCoin, accounted for more than 98% of the total transaction volume.

A new round of bull market is coming

On January 4, 2017, Bitcoin celebrated its 8th birthday with a record high price of 7,820 yuan per coin.

OKCoin CEO Xu Mingxing told China Business News, "From a short-term perspective, the reason for the recent increase is actually difficult to analyze. Bitcoin's recent explosion is the result of long-term accumulation since 2013. Asset prices have the characteristics of cyclical fluctuations. After reaching the bottom, they may be relatively flat for a long time, and then rise or fall sharply in a short period of time."

He pointed out that although the trading volume of domestic trading platforms is large, it does not represent China's dominant position in the international Bitcoin market. Due to the fierce competition among domestic platforms, the model of 0 transaction commission has prompted users to buy and sell repeatedly, resulting in a large trading volume. In fact, the real Bitcoin transactions on domestic platforms only account for about 30% of the world, and most Bitcoin transactions are still abroad.

Yang Tao, assistant director of the Institute of Finance of the Chinese Academy of Social Sciences, believes that most of the people who invest in Bitcoin are professional Bitcoin speculators, and most ordinary residents are not currently involved. Investors do not trade Bitcoin as a currency, but as a speculative asset. The proportion of cross-border speculation is not high. Bitcoin is still within the player circle, and speculators are mainly in China.

In 2016, after experiencing a decline at the beginning of the year, the price of Bitcoin rose from 2,950 yuan to 3,800 yuan in three days at the end of May, an increase of more than 25%. Then in mid-June, the price broke through the 5,000 yuan mark and began to fall back. Since August, the price of Bitcoin has been rising all the way.

In November 2016, Indian Prime Minister Narendra Modi announced the abolition of 500-rupee and 1,000-rupee notes, which correspond to 51 yuan and 102 yuan respectively. At the same time, facing the continued depreciation of the currency and severe inflation, Venezuela abolished the old currency and issued new notes with larger denominations. Some analysts pointed out that the demand for safe haven funds during the turbulent international political situation last year may have driven the current round of Bitcoin price increases.

Liu Zejing, a researcher at China Merchants Securities, believes that with the fluctuations in the RMB exchange rate and the increased risk of economic fluctuations in some countries and regions, risk aversion has prompted funds to flow into the Bitcoin investment market.

In fact, the last round of Bitcoin surge was related to risk aversion and cross-border capital flows. In March 2013, Cyprus, a country in the Eurozone, announced the confiscation and freezing of 60% of residents’ savings in exchange for assistance from the European Central Bank. Subsequently, people lined up to buy Bitcoin and transferred assets abroad through Bitcoin, pushing up the price of Bitcoin by 20% within two days.

After the surge, regulators from various countries have expressed their intention to impose taxes on Bitcoin transactions or even ban Bitcoin transactions altogether. No government recognizes Bitcoin as legal tender.

On December 5, 2013, the People's Bank of China and four ministries jointly issued the "Notice on Preventing Bitcoin Risks" (Document No. 289) (hereinafter referred to as the "Notice"). The "Notice" requires that at this stage, all financial institutions and payment institutions shall not carry out Bitcoin-related businesses, and shall not use Bitcoin as the pricing of products or services.

Under the siege of regulators from various countries, Bitcoin speculation suffered a severe blow, with the price plummeting from a high of $1,040 to $410 in less than half a year, and hovering around $200 for most of 2015.

However, Xu Mingxing said: "It is a selective memory to link every decline with regulation. The lowest price of Bitcoin fell to more than 900 yuan in 2014, but there was no regulatory policy at that time. The decline was still related to people losing confidence in Bitcoin. There is no necessary connection between the rise in Bitcoin prices and capital control. In the history of Bitcoin's approximately 20 increases, only 3 were due to capital control."

He believes that currency exchange through Bitcoin is theoretically possible, and it is not ruled out that some individual investors may exchange RMB for US dollars and move abroad in this way, but the operational difficulty and actual data show that this has not become a trend. Otherwise, the price of Bitcoin at home and abroad will form a continuously expanding price gap, but the current price gap is only 2% to 3% at most.

A person close to the regulator told the reporter that investors buy Bitcoin with RMB and then sell it with USD, which objectively breaks the restrictions of foreign exchange control. At present, the national regulatory level has not regulated Bitcoin exchanges, but if Bitcoin's problems in foreign exchange control and anti-money laundering become more and more prominent, it will attract the attention of regulators.

Will it become the currency of the future?

Since its birth, Bitcoin has shown a kind of fundamentalist anarchism. In 2008, a person who called himself Satoshi Nakamoto released the source code of Bitcoin on an online geek forum. According to Satoshi Nakamoto's design, Bitcoin is issued every ten minutes, and the issuance rate is halved every four years, and the final total issuance will be fixed at 21 million. In the eyes of geeks, Bitcoin has the function of resisting inflation as an electronic currency because it will not be over-issued. In addition, the anonymous transaction feature also allows Bitcoin to avoid any form of supervision.

In July 2016, the Bitcoin source code entered its ninth year of operation. The issuance rate of Bitcoin dropped from 25 per minute to 12.5 per minute. Currently, more than 16 million Bitcoins have been issued. Calculated in RMB, the current total market value of Bitcoin has reached 123 billion yuan. It is expected that in the near future, the issuance rate will drop rapidly, and the marginal cost of Bitcoin issuance will become increasingly high.

Wu Sijin, a Bitcoin investor who is engaged in blockchain technology research, believes that the birth of Bitcoin is accompanied by the quantitative easing policy of the United States. The depreciation of currency has led to a surge in the demand for wealth preservation, which is the main reason why market participants recognize the value of Bitcoin. He believes that compared with gold, Bitcoin is not only scarce, but also has advantages such as low storage costs and convenient payment.

On a website called Spendbitcoins.com, users can use Bitcoin to buy almost everything from clothes and jewelry to cars, houses, and movie tickets.

In January this year, Microsoft officially announced plans to provide extensive support for Bitcoin in the upcoming Excel 2017, which will allow users to calculate, typeset and analyze Bitcoin on the platform.

Xu Mingxing believes that in the past three years, the fundamentals of Bitcoin have improved to a certain extent. Regulators in some countries have begun to issue Bitcoin operating licenses. At the same time, more and more people have realized the technical value behind Bitcoin. The blockchain technology represented by Bitcoin is regarded as the underlying technology that subverts the financial industry and will be applied to financial industries such as securities, banking, and insurance. This objectively encourages more people to understand Bitcoin, which is the fundamental reason for the long-term rise of Bitcoin.

However, Yang Tao pointed out that although Bitcoin has the prototype of virtual currency, it is not a successful currency in terms of its basic properties such as payment and storage. Its price fluctuates greatly. Since the issuance of Bitcoin is limited, it is difficult to play the role of modern credit currency. Therefore, Bitcoin is more of an asset, but due to the strong demand for speculation, it is difficult to price it in the market.

Due to the limitation of the total issuance amount, the central bank cannot coordinate the imbalance of total supply and total demand in the macro-economy by adjusting the supply of Bitcoin. The total amount of Bitcoin cannot increase with the increase of the number of products, which may lead to deflation and be harmful to economic growth.

Another shortcoming of Bitcoin is its distribution system. Although Bitcoin can avoid the monopoly of currency distribution rights, it may not necessarily achieve fair and effective distribution. According to the Bitcoin issuance rules, only machines with more powerful computing power can obtain Bitcoin. As long as you control 51% of the total computing power, you can do whatever you want, even change transaction records.

In addition, Bitcoin is not absolutely safe. Since its inception, Bitcoin trading platforms have been frequently attacked by hackers. In February 2013, Mt. Gox, the largest trading platform at the time, was hacked and suddenly collapsed, with $470 million worth of Bitcoins missing. On August 4 last year, Bitfinex, one of the world's largest Bitcoin exchanges, was hacked, losing 120,000 Bitcoins worth more than $72 million.

However, Bitcoin has opened up ideas for the development of digital currencies. Many countries are currently exploring future national legal digital currencies by referring to the settlement and payment technologies that Bitcoin relies on.