In the past two days, the bitcoin market has experienced a sharp decline. It fell by $10,000 in one day, the largest single-day drop in Bitcoin history. It fell from a high of $58,000 to a low of $46,000 in two days. Although Bitcoin has experienced such a large decline in the short term, I think the bull market of Bitcoin will continue. Both short-term and long-term factors that lead to the rise of Bitcoin prices continue to exist. Therefore, the current decline is a short-term adjustment and will not This is the beginning of a Bitcoin bear market.
In terms of short-term factors, some predictable events this year are positive factors for Bitcoin. First up is Coinbase's upcoming listing. In the current private placement market, the market value of Coinbase has been rising. It is currently valued at $100 billion. If listed at this market price, Coinbase will be the second largest company by market value at the time of listing after Facebook.
In terms of short-term factors, some predictable events this year are positive factors for Bitcoin. First up is Coinbase's upcoming listing. In the current private placement market, the market value of Coinbase has been rising. It is currently valued at $100 billion. If listed at this market price, Coinbase will be the second largest company by market value at the time of listing after Facebook.
Positive for Bitcoin The second near-term factor is the filing of Bitcoin-based ETFs. At least VanEck, Morgan Stanley and NYDIG have filed applications to set up Bitcoin ETFs. These applications now have a higher chance of approval than before. Among the reasons for the SEC’s rejection of the establishment of a Bitcoin ETF in recent times, the lack of a suitable custody mechanism and the inability to rule out market price manipulation factors are the main reasons for the SEC’s refusal to approve the establishment of a Bitcoin ETF. But today, Bitcoin’s escrow mechanism has improved dramatically. In particular, the U.S. Office of the Comptroller of the Currency has clarified in 2020 that the Federal Bank of the United States can provide custody services for encrypted digital currencies, so the custody mechanism for Bitcoin has already begun to improve. In terms of price manipulation in the Bitcoin market, this factor will always be present. Even on regular stock exchanges, market price manipulation occurs from time to time. Therefore, for regulators, cracking down on market price manipulation is a persistent job. Therefore, it is not entirely based on this reason to reject the application of Bitcoin ETF. Gensler, who is about to serve as the chairman of the SEC, is in favor of Bitcoin, which is completely different from the basic position of the previous SEC chairman. Therefore, the chances of the SEC approving the establishment of a Bitcoin-based ETF are even greater (see my article "Bitcoin ETF application is a question that the new SEC chairman needs to answer immediately"). Finally, considering the reality, Bitcoin has now begun to circulate and trade in the US market. Retail customers can buy and sell bitcoin through companies like Coinbase, PayPal, and Square. Institutional clients can also buy and sell bitcoin through institutional products like Coinbase and Grayscale Bitcoin Trust. Therefore, not approving the establishment of a Bitcoin ETF will not protect American investors from losses caused by market price manipulation. From the perspective of the international situation, the Bitcoin-based ETP in Europe and the Bitcoin-based ETF in Canada are both welcomed by the market. This will affect the establishment of ETFs approved by the US SEC.
If you want to understand the impact of the Bitcoin ETF on the price of Bitcoin, you can see the trend of the price of gold after the establishment of the Gold ETF.
A third near-term factor that is bullish for Bitcoin is the circulating usage of the Diem stablecoin. At the end of 2020, the Diem Association has announced that it has submitted an application to FINMA in Switzerland and is awaiting FINMA's approval. It may even start running as soon as January 2021. Although it still hasn't started running yet, it is clear that the chances of it starting running this year are very high. At the beginning of this year, U.S. financial regulation has made it clear that it supports the development of stablecoins. Therefore, the circulation and use of stablecoins in the US market should also be a high probability event. After the Diem stablecoins start to circulate, some of them will definitely flow into the encrypted digital currency market, that is, into Bitcoin transactions. This will obviously benefit the price of Bitcoin. In terms of stablecoins, in addition to Diem stablecoins, U.S. commercial banks are also likely to launch their own U.S. dollar stablecoins (see my article "U.S. commercial banks will launch U.S. dollar stablecoins"). This will also be very beneficial to Bitcoin transactions.
In terms of institutional purchases of Bitcoin, more U.S. listed companies are expected to announce purchases of Bitcoin this year. This is certainly all positive for Bitcoin. Some analysts are now even predicting that Tesla will further buy Bitcoin. Such institutional buying would certainly support the continuation of the Bitcoin bull market.
In terms of the bitcoin purchase behavior of trading users, there are more and more behaviors of buying and holding for a long time now. This shows that individual users and institutional users are holding Bitcoin as a store of value. This provides a very strong technology for the long-term stable growth of Bitcoin.
In terms of the application of Bitcoin, the payment based on Lightning Network has also begun to show its very strong advantages. This will have more applications in cross-border fiat currency payments. Therefore, more users will be attracted to carry out more transactions on the Bitcoin network. Bitcoin's greater global liquidity would obviously increase Bitcoin's appeal as a store of value.
In terms of basic data on the Bitcoin network, the number of Bitcoin nodes, the number of wallet addresses on the network, and the total amount of value transfers on the network are all reaching record highs. These data show that Bitcoin is becoming more and more accepted by the market.
Despite the above positive factors, Bitcoin is still a very controversial product. For example, Yellen, the new U.S. Treasury Secretary recently, believes that Bitcoin can be used for illegal activities and is a highly speculative product. European Central Bank President Christine Lagarde also believes that Bitcoin is a highly speculative product and therefore requires stronger regulation. Therefore, there are still very strong uncertainties in the regulation of Bitcoin transaction circulation. In fact, the regulatory factor is Bitcoin's biggest gray rhino factor. Therefore, there will still be large fluctuations in future Bitcoin transactions. But I think the long-term upward trend is certain. For ordinary investors, if they recognize the trend of Bitcoin, they can gradually hold Bitcoin in the form of fixed investment. Never use leverage in the hope of profiting from bitcoin trading.
