Behind the crazy rise of Bitcoin, has China become the largest buyer of Bitcoin?

Author: Shenzhen 8 Internet Finance

Mr. Shen8 joked: Tim Burton, transformed into a producer , returned with "Alice in Wonderland 2", which reflects the world in its absurdity. Alice deliberately changed into Qing Dynasty costumes to travel through time to please Chinese fans. The motive is obvious. Chinese demand has become the driving force of many industries around the world, and Bitcoin is no exception. The market trend is like the mad hatter played by Uncle Depp. After experiencing downturn, fragility and doubt, crazy Bitcoin is back!

Bitcoin, which has been silent for a long time, has re-entered people's sight, and staged a crazy drama of rising prices. After 5 months of sideways consolidation, it has jumped up in recent days. According to OKcoin data, from May 27 to 29, the cumulative increase of Bitcoin exceeded 30%. Among them, on May 29, the price of Bitcoin once soared to US$599/Bitcoin, equivalent to RMB 3,944.30, an increase of more than 10% over the previous day, and it was the third consecutive day of sharp increase. The price has almost broken through 4,000 yuan, which is more than 500 yuan higher than foreign exchanges.

This is the largest increase since the Bitcoin bubble burst in November 2013. Many people believe that this increase is due to Chinese demand.  

The past and present of grassroots currency

From a technical perspective, Bitcoin, which was born on January 3, 2009, is a virtual currency. It is a decentralized, peer-to-peer (P2P) digital cryptocurrency designed by an anonymous person who calls himself Satoshi Nakamoto. Unlike most currencies, Bitcoin has no central bank and can be circulated around the world and exchanged for the currencies of most countries. Yes, these words that look like "garbled" can be used to exchange money, except in Russia.

Just like the RMB is backed by the government, the value of Bitcoin is backed by computing power. It is generated through a large amount of calculations based on a specific algorithm. The Bitcoin economy uses a distributed database composed of many nodes in the entire P2P network to confirm and record all transactions, and uses cryptographic design to ensure the security of each link in the currency circulation. Without a private key, even the most powerful supercomputers find it difficult to decipher these codes, thus gaining excellent user trust. To get Bitcoin, you either buy it from others or "mine" it yourself.

As a currency, Bitcoin also has payment functions. It can be used to buy things in the Bitcoin market just like RMB, such as clothes, hats, and equipment in online games. However, real-life transactions have not yet been heard of.

The extreme scarcity is the biggest difference between Bitcoin and other virtual currencies. The total number of Bitcoins is very limited. According to the design of the algorithm itself, the number of Bitcoins produced will be halved every four years. By 2140, a total of 21 million will be "issued", and the total amount will not increase, which effectively avoids inflation.

Bitcoin, which seems to have many advantages, actually has mixed reviews among economists. Even so, Bitcoin still hit a two-year high in recent days . Why?

First, the end of June this year happened to be the day of Bitcoin halving. The Bitcoin circulation rules stipulate that the number of Bitcoins in circulation increases at a decreasing rate, with a maximum of 21 million. The Bitcoin network releases a certain number of coins every 10 minutes, and it is expected to reach the limit in 2140. Due to the Bitcoin algorithm of "supply halving every four years", the end of June this year happened to be the day of Bitcoin halving, and the supply will be reduced by half, which will have a certain impact on the price. In addition, traditional investment products such as P2P and stocks have been weak since September last year, resulting in rising investment demand, and Bitcoin has become a new target.

Second, the loosening of global Bitcoin-related policies and the expansion of the number of people using blockchain technology . The Bitcoin-related policies of the United States, Europe, Japan, etc. are becoming clearer and clearer. Bitcoin has been allowed to be used as a settlement currency. It has become a trend to legally regulate Bitcoin exchanges and trading behaviors. The People's Bank of China has also talked about digital currency and Bitcoin's underlying technology blockchain many times, but of course it does not include Russia.

Internet finance is a combination of efficient financial services and innovative technologies. The prevalence of blockchain technology highlights this point well, because it can replace the traditional financial system and bring frictionless, low-cost, and efficient service experience. This has made it recognized by various financial institutions and central banks around the world, and it has also begun to be promoted in Nasdaq. It regards Bitcoin as an electronic general ledger, which is open and updated in real time, or forms a basic agreement for global "credit", providing basic "credit" resources and low-cost value transfer channels for the global market.

Third, the demand in the Chinese market driven by the depreciation of the RMB is the biggest driving force behind this wave of growth. Recently, the onshore and offshore exchange rates of the RMB have continued to fall, and expectations of RMB depreciation have gradually formed. According to data from the China Foreign Exchange Trading Center, two days ago, the central parity rate of the RMB against the US dollar was further reduced by 294 basis points to 6.5784, a new low since February 15, 2011. In order to prevent assets from shrinking, Bitcoin has become the latest hedging and risk-avoidance product discovered by Chinese people compared to gold that cannot be moved. Although Beijing has been restricting Bitcoin transactions, data from China's two major Bitcoin trading platforms show that China currently accounts for about 92% of the total global Bitcoin transactions, and the price calculated in RMB is 7.2% higher than that calculated in US dollars. Bitcoin has thus increased in value.

From this perspective, Chinese buyers are undoubtedly the largest users of Bitcoin . However, unlike countries such as Mexico, Italy and some Southeast Asian countries where Bitcoin is used to pay for living expenses and utilities, the reason why Chinese people reserve Bitcoin is to preserve the value of existing assets and hedge risks.

First of all, whether it is stocks, futures, real estate, or gold, anything that may be profitable within a certain period of time will cause a frenzy. This is the characteristic of Chinese investors. They carry tens of trillions of domestic funds and roam around looking for targets. Bitcoin is naturally one of the investment targets.

Secondly, the strong dollar and depreciation of the RMB have caused domestic investors to gradually convert RMB-denominated assets into Bitcoins that can be circulated globally to reduce the risk of their property shrinking. With the tightening of domestic capital flow controls and the increase in trading volume, Bitcoin has now become an alternative asset for many Chinese people, and it is only a matter of time. At present, the market value of Bitcoin circulating in the global market is about 8 billion US dollars, and China's huge savings of 40 trillion US dollars that "have nowhere to go" will be slowly and easily transferred to Bitcoin, because this is the most convenient way to exchange for US dollars, and the probability of "capital flight" coming true is very small.

Finally, the development of blockchain is the only way for China to transform from a cyber power to a cyber power, and Bitcoin is one of its most outstanding representatives, and will also become a reference for the central bank to control currency.