The mystery behind Bitcoin's sudden surge

Bitcoin, which had been silent for over a year, suddenly surged last week, and then plummeted, attracting much attention from the market. What is the mystery behind the crazy rise and fall of Bitcoin?

On November 4, dark clouds came and drove away the sunshine of the previous day. In this mysterious weather, there was indeed a "demon" stirring up trouble - Bitcoin rushed through the $400 mark and approached the $500 line. The last time Bitcoin hit this price was in August 2014. However, the price of Bitcoin then turned downward and plummeted. A large amount of selling pressure pushed its price down 26% to $368.

A careful analysis of this round of market shows that there is a rationale for profit-taking after a sharp rise in prices, but such a large-scale sell-off can no longer be measured by normal trading levels. It is simply an attempt to destroy all buying orders in order to lower and re-price asset prices. The cliff-like decline in Bitcoin, which has been crazy for a month, has once again exposed its speculative nature.

Bitcoin was born in January 2009 and was once known as the " great experiment of Internet finance ". Bitcoin's two major characteristics of "decentralization" and "scarcity" completely eradicated the drawbacks of the central bank's unlimited over-issuance of currency and invisible inflation. Therefore, as soon as it was born, it overturned people's traditional concept of currency and quickly had a broad market.

Around 2013, Bitcoin developed very quickly. Some countries began to allow real currency to be exchanged for Bitcoin. Many investments poured into the Bitcoin market, which once impacted the current currency issuance system, and even led to calls for replacing the current global monetary system. After the heyday of Bitcoin in 2013, Bitcoin went through a year of constant negative news. First, central banks of various countries were on high alert, and many countries stated that they would not recognize its currency status. Then, the bankruptcy of Bitcoin exchange Mt. Gox brought the blow to its peak. Since then, the trading price of Bitcoin has been hovering between $200 and $300.

This former Internet finance star once faded into obscurity. After entering 2015, Bitcoin seems to be determined to regain its past glory. Especially since the end of September this year, Bitcoin has been rising for 7 consecutive weeks, the longest continuous rise since November 2013. The highest price has risen by 123% from the low point in January this year, and the price has risen by 70% in the past month. It is still unknown where the price of Bitcoin will go in the future, but it is an indisputable fact that Bitcoin has become the most popular Internet virtual currency in the world.

Magister Advisors, a UK-based technology industry M&A advisory firm, surveyed 30 of the world's leading Bitcoin companies and claimed that they all agreed that Bitcoin will become the world's sixth largest reserve currency in the next 15 years. Bitcoin is a virtual currency that users can use to exchange credit for goods and services online, while the so-called reserve currency is a currency held in large quantities by governments and institutions as foreign exchange reserves . In this sense, Bitcoin can fully serve as a reserve currency.

The optimistic predictions released by industry insiders about the future prospects of this mysterious currency were certainly not enough to push Bitcoin on a roller coaster ride last week. However, since it is a great Internet financial experiment, the technological innovation promoted by Bitcoin has indeed brought good news to the real financial field, and this innovation is the main driving force behind the recent sharp price increases.

After China's currency reform in August, the impact of stock market turmoil caused a large amount of capital outflow. Some analysts believe that investors may use Bitcoin to transfer funds in order to avoid China's capital controls, and the strengthening of Chinese government capital controls may also stimulate the rise in the value of Bitcoin. Bitcoin Magazine, a Bitcoin industry media, reported that the Chinese market led the rise in Bitcoin prices. The evidence is that the Bitcoin transaction price in China is 10-15 US dollars higher than that in Europe and the United States. After the Chinese Bitcoin exchange BTCC announced on November 12 that it would accept direct deposits from customers' RMB accounts, the price of Bitcoin soared. However, China has always been strict in regulating Bitcoin platforms. The latest news shows that a trading company called Yishidun once considered using Bitcoin to transfer funds overseas, but eventually abandoned the plan because it could not circumvent the real-name system control.

In addition, the recent positive news of the relaxation of Bitcoin policies in Europe and the United States may also be the cause of the rise of Bitcoin. Since the beginning of this year, many countries including the United States and Europe have begun to relax their regulatory policies on Bitcoin. The U.S. Commodity Futures Trading Commission (CFTC) released a document in September, defining Bitcoin and other virtual currencies as commodities for the first time , which means that Bitcoin has a formal commodity status and can be traded like gold and oil.

At the end of October, the European Court of Justice ruled that Bitcoin is exempt from VAT like traditional currencies, which allows Bitcoin to compete equally with traditional currencies on the same platform. These measures seem to indicate that Bitcoin has finally attracted the attention of financial institutions and is moving towards the light step by step.

To be honest, the existence of Bitcoin may make the orthodox and authoritative monetary authorities unhappy. The popularity of Bitcoin will highlight the shortcomings of the current global monetary system. Regardless of whether central banks of various countries ruthlessly ban Bitcoin or cautiously wait and see, once Bitcoin, a virtual currency, comes out, it is impossible to ignore it. Even if it exists only as an "alternative", it will at least prompt people to reflect on the existing global monetary system. However, one of the important contributions of Bitcoin's development process is to promote continuous technological innovation, and the latest achievement is blockchain technology. In this era of innovation, this innovation alone is enough to surpass Bitcoin's contribution to the financial world.

In fact, the current rise in Bitcoin is mainly driven by the technology behind it, blockchain. Blockchain is the most important advancement in IT companies in the past decade. It is a public and transparent ledger of all Bitcoin transactions and is expected to become the default global standard distributed account for financial transactions. This is where Bitcoin is truly valuable.

Recently, major investment banks and many financial institutions around the world have been paying attention to blockchain technology. Bitcoin, as a derivative of blockchain technology, has attracted the attention of many investment banks and financial institutions due to its authenticity and transparency. A project participated by Goldman Sachs and Morgan Stanley to explore the possibility of using distributed accounts in the financial industry is committed to improving securities, derivatives and loan businesses. In September this year, 13 banking institutions including Bank of America , Citi and Deutsche Bank joined the project at the same time. According to the survey, the top 100 financial institutions in the world plan to spend $1 billion on blockchain-related projects in the next 24 months. Blockchain is so popular because its future prospects cannot be underestimated. In addition to financial institutions, public ledgers have many other uses.

A well-known luxury goods company is trying to use this technology to deal with the headache of counterfeiting. For many people, the real prospect is the ledger, and Bitcoin itself is just a shell. Obviously, it is thanks to the blockchain technology behind Bitcoin that well-known financial companies have increased their interest and acceptance of Bitcoin, which has driven investors to be bullish on Bitcoin. Driven by the market, tens of billions of funds have poured into the Bitcoin market. According to data provided by Huobi.com, the platform's transaction volume in October was nearly 10 million, a nearly 3-fold increase from the previous month; the transaction amount in October was as high as 21.38 billion yuan, a 4.5-fold increase from the previous month. Bitcoin, which has been silent for a year, has seen a sharp rise driven by blockchain technology. The most interesting part of the myth of digital currency at the end of the year is technological innovation, which is something that traditional currencies have never experienced.

Of course, no matter what the reason, this round of Bitcoin price rise is still related to speculation, and the above reasons also provide speculators with the subject of speculation. The sharp fluctuations of Bitcoin also attracted attention and attracted severe criticism. Some speculators hyped Bitcoin for profit, which contributed to the accumulation of risks. At this stage, about 90% of Bitcoin is held by speculators. Investors must be aware of the investment risks of Bitcoin.

In fact, before it becomes a mature currency, this kind of virtual currency will always be at risk of speculation. After it becomes a real currency, it will definitely be brought under the scope of regulation, because in the current era, no currency can avoid government regulation.