Is China also starting to scramble for Bitcoin?

Author: Ruan Shengtian WeChat: RDST6666 Image source: Dazhi

In China, anything that can be hyped can be snapped up at any time. In the first half of last year, people scrambled for stocks. This year, many cities scrambled for houses. Later, they scrambled for commodity futures. Because in the eyes of Chinese investors, if you grab these things, you grab money. So there is no way to avoid madness. Crazy grabbing is not only a characteristic of Chinese investors, but also because there are tens of trillions of funds flowing around in the domestic market.

These funds are chasing after targets in the domestic market. Now, the domestic commodity futures gamble has not yet completely ended, and Bitcoin has become another target for domestic funds to scramble for.

Recently, as the expectation of the Fed's interest rate hike has increased, the strength of the US dollar has become the focus of the international market. The strongest impact of the US dollar is on Asian currencies, which has led to a comprehensive depreciation of Asian currencies, including the RMB. Fed Chair Janet Yellen said that if the economy and job market continue to strengthen, it is likely that the Fed will raise interest rates in the coming months.

Although Yellen did not specify which meeting would raise interest rates, her speech is boosting expectations that the Fed is close to taking policy action again. Yellen's speech caused the US dollar exchange rate index to rise rapidly, which not only caused the depreciation of the RMB after a few months of calm, and yesterday the depreciation of the RMB reached a new low in five years, but also stimulated an immediate surge in Bitcoin.

That is to say, after five months of sideways consolidation, Bitcoin has jumped sharply in recent days and hit a nearly two-year high.

According to reports, the crazy rise of Bitcoin started last Friday (27th). After three consecutive trading days of rise, the cumulative increase last week reached 32%, which is the largest weekly increase since the Bitcoin bubble burst in November 2013. The price was close to $600 during the session, setting a new high since July 2014.

On May 27, the Bitcoin news website CryptocoinNews made a technical analysis based on the Bitcoin trend and predicted that the Bitcoin price would rise to $500. Unexpectedly, the Bitcoin price quickly broke through the $500 mark a few hours later. However, on the evening of May 29, Bitcoin fell from the high of $600 to around $526.

Regarding the sudden crazy rise in Bitcoin, many market participants believe that it may be related to the strong US dollar and the depreciation of the RMB. Because, under the trend of RMB depreciation, domestic investors began to sell RMB-denominated assets and turned to chasing Bitcoin.

According to market estimates, the current market value of Bitcoin in circulation around the world is about $8 billion. In the eyes of domestic investors, the large capacity of the Bitcoin market is also a way to choose assets, because as far as the current situation is concerned, holding Bitcoin is the most convenient way to exchange for US dollars.

According to the data from the current trading platform, when the price of Bitcoin rose to $530 last Friday, as much as 95% of the transactions were denominated in RMB. In other words, in the recent crazy rise of Bitcoin, the vast majority of transactions were made by Chinese people.

This is also the fundamental reason why Bitcoin is pushed up so much. It can be said that as long as the US dollar continues to be strong, the RMB will gradually depreciate, and domestic capital flight is an inevitable trend. In this regard, the control of domestic capital flows may be stricter. In this case, domestic investors may choose Bitcoin as an asset to transfer overseas, which may lead to further craze for Bitcoin. However, domestic investors should be careful about this.

Because, although Bitcoin is currently popular in China again and domestic investors have begun to scramble for Bitcoin, and although research on the technology "blockchain" to develop Bitcoin is hot around the world, relevant professionals are generally pessimistic about the future of Bitcoin.

According to reports, a few months ago, Mike Hearn from the Bitcoin core development team boldly admitted in an article that Bitcoin has failed. What's worse, the Bitcoin-related community has failed and the entire network has reached the brink of technical collapse.

Taavet Hinrikus, president of international payment institution TransferWise, even shouted that "Bitcoin is dead" and that no one in the real economy uses Bitcoin for transactions anymore. In fact, after the Chinese people's enthusiasm for Bitcoin disappeared in 2013, Bitcoin has lost its glory, especially the bankruptcy filing of Bitcoin exchange Mt.Gox in 2014, which dealt a serious blow to Bitcoin.

However, these are only the future trends of Bitcoin from a technical perspective. If we look at the future development of Bitcoin from the essence of currency, the possibility of this digital currency truly becoming an investment tool is not very high.

Because, if there is no market credit and national political power to insure, this digital currency will not only face the risk of collapse in technology, but also the risk of bankruptcy in concept. Therefore, domestic investors have learned the lesson of 2013 and should not be too crazy about Bitcoin.