Bitcoin production is halved, and the super bull market is about to start

What is Bitcoin? No one can answer this question yet. The views of different governments are different, and even different government departments in the same country have different views. The IRS believes that Bitcoin is a stock, and the US Commodity Exchange believes that Bitcoin is a commodity. Germany believes that Bitcoin is a currency, Singapore believes that Bitcoin is a commodity, and China believes that Bitcoin is a stamp. Australia initially believed that Bitcoin was a commodity, but now it believes that Bitcoin is a currency. In fact, for a new thing, any form of classification is inappropriate, just as in the 1990s, it was inaccurate to think that the Internet was a telephone or a telegraph. The economics of Bitcoin is even more confusing. Economists have adapted to the economic system of "moderate inflation" and are at a loss for a digital asset with a fixed supply and a halving of output every four years. Bitcoin has already completed a growth of more than 100% in the first half of 2016. Will it continue in the second half of the year? This article by Martian will tell you the answer.

Risk aversion

Bitcoin is not the only asset that has risen in the first half of the year. Another asset that has performed very well is gold. The amount of funds flowing into precious metal mutual funds and ETF funds is close to the historical high. Since February, investors have continued to invest in US precious metal funds, with an additional $2 billion last week alone. Investment tycoon Soros's fund bought 1.05 million shares of SPDR Gold ETF and 19.42 million shares of gold producer Barrick in the first quarter. "New Bond King" Jeffery Gundlach said in his latest report that the rise of the US dollar may have ended, gold will rise to $1,400, and emerging market stocks will fall by 40%.

What supports the price of gold? Because the existing monetary system is already shaky. As Martian pointed out at the beginning of the year, there is no possibility of the Fed raising interest rates. Halfway through 2016, the discussion about raising interest rates has died down, and the next money printing plan has begun to be put on the table. In an interview, former Fed Chairman Greenspan said pessimistically: "Hyperinflation is on the way, and only the gold standard can save the United States." Greenspan mentioned that from 1870 to 1913, the US economy was booming and it was also the golden age of the gold standard. The Bank of England report pointed out that because of the deflationary characteristics of Bitcoin, it may become a hard currency that is "harder" than gold.

The smoke of the Greek crisis has not yet dissipated, and Europe has once again become a powder keg. Brexit has gone from a joke to a fact. This has brought about a series of chain reactions: a total of seven large open-end real estate funds in the UK have suspended investor redemptions, and the UK banking industry has a real estate exposure of at least 65 billion pounds, accounting for more than 30% of the total market value. Where should this huge amount of bank bad debt go? The pig teammate continues to make up the knife: the Italian banking industry is burdened with a total of 360 billion euros in bad debts. More and more large Italian financial institutions are facing pressure to increase capital, and the country's bailout fund is far from enough to cope with the turmoil caused by Brexit. To make matters worse, Deutsche Bank is about to collapse: How low is Deutsche Bank's stock price? The market believes that Deutsche Bank's value is less than a quarter of its book net asset value.

The market is back to 2007 and all investors are readjusting to risk-off mode.

Financial Revolution

Bitcoin and gold have similarities and differences. Bitcoin has a powerful ally behind it, which is blockchain technology. Although Bitcoin is still controversial, blockchain technology has been recognized as the most important technological breakthrough since the birth of the Internet. Bitcoin is not only an asset, it is also a value transmission network, similar to PAYPAL, VISA and MASTERCARD. In the field of financial technology, Bitcoin is conquering cities and castles. Recently, there are two very important investment events in the Bitcoin field that deserve attention.

Mitsubishi UFJ Financial Group, Japan's largest bank, will enter the Bitcoin market by investing in Coinbase, a company that provides users with storage and payment of Bitcoin. Founded by Brian Armstrong and Fred Ehrsam in 2012, Coinbase has expanded its business to 32 countries, up from 19 countries in January 2015. Coinbase has raised a total of $116.7 million and obtained banking licenses in the United States and Europe. UFJ is the most conservative bank in Japan and does not even accept foreign bank cards for cash withdrawals at ATMs. The investment decision surprised everyone.

Circle Internet Financial, an American digital payment company, raised $60 million in its Series D round of financing, led by IDG, followed by BreyerCapital, General Catalyst Partners, Baidu, CICC, Everbright Investment Management, Wanxiang and CreditEase, as well as former IBM chairman and CEO Samuel Palmisano and Silver Lake Capital co-founder Glenn Huggins. This is the first time that Chinese capital has flowed into the Bitcoin and blockchain fields on a large scale. Baidu and Everbright, as representatives of the Internet and financial fields, have already jumped into the pool.

The revolution of blockchain technology on the existing financial system has just begun.

Production cut in half

Bitcoin has a fixed upper limit of 21 million, which makes it extremely scarce, and scarcity is the source of all value in the world. The last halving occurred in November 2012, and Bitcoin rose more than 10 times in the following six months. In the meantime, the Central Bank of Cyprus defaulted, and all deposits of residents in the country above 100,000 euros were reduced to zero. Every four years, the chaos in Europe's current financial system seems to be brewing the next more violent storm.

For Bitcoin miners, halving means a sudden change in expected output, and the market may not have time to adjust. There are two aspects that affect the profit margin of mining: the first is the price of the currency. The halving of output further reduces the number of Bitcoins that can be circulated on the market, and the miners' selling pressure on the market is further reduced. This is undoubtedly good for the price of the currency, but it will take one to two months to adjust; the second is the difficulty. If the price of the currency does not change, a considerable number of mining machines will enter a loss-making state and be forced to shut down, while other mining machines that remain competitive will continue to work, which will lead to a reduction in the difficulty of the entire network. In short, the mining industry will maintain a dynamic balance of profit margins and will return to normal industry expectations within one or two months.

This halving is a milestone for Bitcoin. Since its birth in 2009, Bitcoin has been questioned and has been declared dead dozens of times by various media and experts. As a social experiment, Bitcoin and blockchain technology have perfectly proved that the realization of a decentralized clearing network is feasible. Bitcoin has gradually emerged from the underground black market economy, and the legislation of various countries on Bitcoin has also tended to be perfect. Bitcoin is halved every 4 years. 4 years is just a short moment in human history, but in the history of Bitcoin, 4 years is a revolutionary change.

Martians are very much looking forward to what will happen in the next four years.

Summary <br/>From an investment perspective, Bitcoin is the perfect choice for asset allocation in the second half of 2016: first, it is a safe-haven asset class stock; second, it is a fintech class stock; third, it is an event-driven class stock. The future is unpredictable, and perhaps the second half of the year will not be able to reproduce the grand occasion of Bitcoin's 10-fold increase in 2012, but for smart investors, the market has ushered in a new opportunity to bet.