Is there any relationship between Bitcoin and economic indicators such as the RMB-USD exchange rate?

Author: huobi

Rising housing prices, falling RMB, rising US dollar index, and the US election are the four hot keywords related to the economy in recent weeks. Coincidentally, as the RMB exchange rate fell recently, the price of Bitcoin on Huobi, the largest digital currency trading platform in China, rose to more than 4,300 yuan, and many people speculated on the causal relationship between the two.

So, is there really a relationship between Bitcoin and these economic indicators?

The Internet has a great relationship with economic indicators

As a social species, the relationship between our overall wealth and the transmission of information is very large. On the one hand, effective information communication can promote division of labor and cooperation, and thus promote the great development of wealth; on the other hand, information exchange is the foundation of business, and business is an amplifier of wealth; even more amazing is that a lot of information itself is a concept, and humans can imagine a large number of common imaginations, such as stocks, companies, currencies, etc. These concepts themselves are synonymous with wealth. It can be said that thinking about these three dimensions of information can lead to effective conclusions. The circulation of information and wealth are highly positively correlated. The smoother the information circulation, the greater the total wealth of society will be.

The circulation of information has resistance and costs. In ancient times, our language system was not rich enough, and we had no communication tools other than voice and gestures. The cost of information exchange was very high. Before modern industrial society, human communication was also limited by physical location. Most people could only live within a few dozen kilometers of their own village for their entire lives. In these times, the scope of information dissemination was limited by physical location. Think about the story of Tang Monk's journey to the West to obtain Buddhist scriptures, and you will know how difficult it is to circulate information. It requires 81 difficulties. Information dissemination is difficult, and widespread poverty is inevitable.

Humans have trained horses and flying pigeons, invented signal tools such as fireworks, invented cars and airplanes, etc., which have greatly expanded the scope of information dissemination and greatly promoted the development of wealth.

But this was not enough until the Internet was invented. The Internet is the most efficient information transmission technology invented in human history, which reduces the cost of transmitting and obtaining information to a very low level. This has also greatly promoted the development of total social wealth.

Now, can you say that the Internet has nothing to do with the economy? When it comes to the economy, experts talk about the total supply, total demand, GDP, price level, unemployment rate, exchange rate, US dollar index, and even the US presidential election... Economists often do not study the impact of information transmission and acquisition on the economy, which is wrong.

The transmission and accessibility of information directly affects the total wealth of society, and directly has a subversive and reshaping effect on various industries. Every major upgrade of the Internet is accompanied by changes in human lifestyles and changes in the amount of social wealth. In the era of PC interconnection, a large number of online stores emerged, bringing an unprecedented huge online mall. In the era of mobile Internet, even paper money is close to extinction.

It can be said that the Internet is related to various economic indicators. But can we humans describe them? We cannot. So far, no one has invented a function that relates the rate of information dissemination to GDP.

Bitcoin is closely related to economic indicators

The Internet has greatly increased the speed of information transmission and acquisition and greatly reduced the cost. But this is not enough. At the Internet stage, information transmission is efficient enough, but value transmission is not fast enough.

A long time ago, when people living in a village wanted to borrow money from each other, they needed to find a prestigious person to endorse them, such as the village chief. In this scenario, the village chief's words could convey value. In the Internet age, information has also been given value to a certain extent, but it needs the endorsement of large institutions, such as banks and stock exchanges. These large institutions, as third-party intermediaries, have given value to information flows such as online banking and stocks, and these values ​​can circulate among the people, which increases the liquidity of wealth.

The increase in value liquidity has greatly promoted the explosion of wealth. For example, when we had stock exchanges, the wealth of the entire nation increased significantly.

However, the current information value flow formed by the Internet and large institutions is still very inefficient and costly. Bank costs are very high, and stock exchanges are even more expensive. These institutions charge us a lot of fees. Another problem is that the current value flow is forcibly divided by national borders, and the flow of wealth between countries is very inefficient and costly.

The blockchain technology represented by Bitcoin is to directly transform the flow of information into decentralized value flow. Bitcoin allows everyone to transfer value to anyone in the world at a very low cost and very high efficiency. With the help of the Internet of Things and blockchain rights confirmation, the flow of wealth and value can be unimpeded on the Internet.

Bitcoin and blockchain technology will greatly increase the efficiency of value flow and greatly promote the development of social wealth. These are of course related to economic indicators.

Take the example of the sharp fall in the RMB exchange rate and the rise in the price of Bitcoin on Huobi.com. Bitcoin is borderless. Any country with a deep Bitcoin market can use Bitcoin to measure its exchange rate volatility. Bitcoin has very good depth in both China and the United States. The recent decline in the RMB exchange rate and the strengthening of the US index are reflected in Bitcoin. Obviously, the increase in the price of Bitcoin in RMB on Huobi is much greater than the planned increase in US dollars. And calculated at the official RMB exchange rate, the RMB price of Bitcoin in China is higher than the US Bitcoin market price. Therefore, the news about the correlation between the depreciation of the RMB and the rise in the price of Bitcoin makes sense.

As Bitcoin plays a bigger and bigger role and serves more and more people, its impact on the economy will be the same as the internet's impact on the economy.

Just like the impact of information dissemination on the economy, it is difficult for us to find a functional relationship between Bitcoin and economic indicators. The impact of information dissemination on the economy is so great, and the combination of value and information has such a great impact on the economy, but unfortunately, economists find it difficult to find the exact causal relationship.