The value support behind the surge in Bitcoin

Author: Zhang Zhifeng

Since the beginning of this year, the price of Bitcoin has been rising steadily, and recently it has soared again, and now it has easily exceeded $700. Regarding this round of Bitcoin surge, although some traders exclaimed "Crazy Bitcoin is back", compared with the surge in 2013, there are actually more rational voices. Whether it is Bitcoin traders or people who are just interested in Bitcoin, it is very necessary to recognize the value support of this round of Bitcoin rise under the general trend of the decline of legal currency and the rise of digital currency.

Money is essentially a symbol of credit. In this sense, money is no different from other assets, such as real estate, stocks, artworks, gold, etc. Because credit refers to the degree to which a natural person (or legal person) is recognized by others in a certain group. He can be recognized because of his ability (potential for appreciation) and his commitment to his promises.

Therefore, real estate is also a symbol of credit. In the tide of urbanization, among all the people who want to move into the city and improve their lives by buying houses, those who own houses, especially those in the core areas of metropolitan areas, naturally have high credit. Now, if anyone is asked to choose between owning 1 million RMB or a house worth 1 million RMB 10 years ago, they will choose the latter without hesitation. Real estate is a much stronger symbol of credit than currency. The same is true for artworks. In a specific circle, paintings and calligraphy from a certain era may be strong symbols of credit. People who own them have higher credit, no matter how much deposits and real estate you have.

From this perspective, Bitcoin is essentially the same as the assets we are familiar with and the legal currencies of various countries. It is also a symbol of credit, and its price formation is a result of both speculation and changes in its intrinsic value center. This round of Bitcoin surge is due to the upward shift of its intrinsic value center and cannot be simply regarded as speculation.

Take real estate as an example. In the context of real estate destocking, housing prices in first-tier cities are still rising, while those in third- and fourth-tier cities are falling. The reason is simple. The value center of real estate in first-tier cities is moving upward, because more and more outsiders, most of whom are high-quality talents and wealthy people, continue to pour in. It is the most recognized credit symbol in a huge group. The value center of third- and fourth-tier cities is moving downward. The population of these cities, especially high-end talents, is losing.

The rise and fall of Bitcoin and legal tender have similar principles. In the world of legal tender, there is an increasing state of chaos. The signal of the Fed's interest rate hike has caused the RMB exchange rate to continue to fall. On the other hand, the possibility of Britain's withdrawal from the euro zone is increasing, and the euro is also extremely volatile. Can the US dollar be the only one to stand out? Not necessarily. Several rounds of quantitative easing monetary policy have also made the value center of the US dollar very unstable. No legal tender is convincing and has a relatively stable purchasing power.

But digital currencies represented by Bitcoin are different. Currently, the most popular areas for Bitcoin use are cross-border small payments, such as music and games. Recently, after Steam , a well-known game platform with 10 million Chinese users, supported Bitcoin recharge, a large number of Steam users began to buy Bitcoin, thereby recharging Steam to buy games. It can be seen that the most widely used area for Bitcoin is the borderless Internet. At present, the territory of the Internet virtual world is slowly eroding the real world we live in, and this trend is irreversible.

Fiat currency is the most widely used intermediary in the real world, but its biggest problem is that it is divided by national borders, while digital currency can cross national borders, which is more in line with the demands of the generation that grew up with the Internet. Therefore, the value center of digital currency represented by Bitcoin is constantly moving upward, because it is a more attractive credit symbol in the Internet world. If you don’t believe this, then think about the grand occasion when the "Warcraft" movie was released, and how powerful the fans are in the cross-border community created by "World of Warcraft". In this world, there is a digital currency that appears and has sufficient value support. What is impossible?

This round of rise in Bitcoin prices is largely due to the upward shift of the value center. On the one hand, it is because the virtual world is expanding and becoming more and more "real", and a digital currency is needed to become a credit symbol widely used across borders. This is actually no different from gold, artworks, and legal tender of various countries. They all change their value because they are more recognized or abandoned by a certain group. The euro is a very typical example. The Kosovo War is believed to be launched by the United States to kill the newly born euro and destroy the investment environment in Europe, that is, to make the group using the euro distrust the euro and weaken the credit symbol of the euro.

The upward shift of the value center behind Bitcoin is also affected by the "halving market". That is to say, the four-year output cycle of Bitcoin will be implemented in early July this year . The current output of 3,600 Bitcoins per day will be reduced to 1,800 Bitcoins per day on July 11 , and will continue for four years until the next halving cycle. With the expansion of the virtual world, the demand for Bitcoin is increasing, but the supply is decreasing, which makes Bitcoin "scarce" and naturally increases the price. Remember! To judge whether the price of an asset can rise, it depends on its scarcity. Whether it is real scarcity or created scarcity, it only affects the duration of its value center moving up. The rise in housing prices in first-tier cities is because the urbanization process has made the demand for real estate in the core areas of metropolitan areas more and more vigorous, while the available land is becoming less and less. Although China's real estate bubble is very serious, the value center of real estate in first-tier cities has been moving up over the past decade, which is beyond doubt.

Digital currencies represented by Bitcoin are also facing a long-term upward trend in value centers, and their prices will definitely perform better than assets such as fiat currencies and gold in the future. Of course, Bitcoin may encounter various difficulties due to its own design problems, and there may be better digital currencies to replace it. But as a sentence in "The Three-Body Problem" - "Ignorance and weakness are not obstacles to survival, but arrogance is", ignoring the value support behind Bitcoin and blindly treating it as a tool for speculation will lag behind an era.