On April 11th, the world's largest cryptocurrency by market value, Bitcoin, rose above $30000, reaching its highest price since June last year.Bitcoin's trend over the past 24 hours
On April 11th, the world's largest cryptocurrency by market value, Bitcoin, rose above $30000, reaching its highest price since June last year.
Bitcoin's trend over the past 24 hours. Image from CoinMarketCap
In fact, last year, the entire encryption industry faced a cold winter, and the value of Bitcoin had significantly decreased. The price dropped from $46311.74 on January 1, 2022 to $16547.91 in the same period of 2023, a decrease of 64.3%. As of the time of publication, the price of Bitcoin hovered around $31000, reaching a maximum of nearly $34000, an increase of over 83% compared to the beginning of the year.
Yu Jianing, Executive Director of the Metaverse Industry Committee of the China Mobile Communications Federation, analyzed to Pengpai News (www.thetaper. cn) that encrypted assets such as Bitcoin have become highly financialized, so the price probability cannot escape cyclical patterns. As of the low point in November 2022, Bitcoin has fallen by nearly 80% from its peak in November 2021. Based on past experience, it is not surprising that Bitcoin has led to a wave of small valuation fixes in the entire encryption market during this stage
The banking crisis is a "double-edged sword" for the encryption field
This round of rise is mainly closely related to the global financial markets. "Yu Jianing believes that Silvergate Bank, Signature Bank, and Silicon Valley Bank (SVB) have successively failed in less than a week, which has had a serious impact on the stability of traditional finance and also triggered panic and distrust among investors towards financial stocks and traditional financial markets, Make more people pay attention to blockchain and encrypted assets led by Bitcoin.
On March 10th local time, Silicon Valley Bank went bankrupt after experiencing a deposit run, becoming the second largest bank failure in US history. On March 12th local time, US regulatory authorities also announced a similar systemic risk situation for New York Signature Bank and stated that the bank had been closed by New York state regulatory authorities. On March 15, the large European banks listed on the US stock market continued the downward trend of the European stock market, among which Credit Suisse once fell more than 20%. Within the next five days, UBS purchased Credit Suisse at a price of 3 billion Swiss francs (about 3.2 billion US dollars) under the mediation of the government to ensure the financial stability of Switzerland.
On March 20, 2023 local time, outside the Silicon Valley Bank branch in Santa Monica, California, USA. Visual China Map
Yu Jianing mentioned that the market generally believes that after the banking bankruptcy incident, the US Treasury Department, Federal Reserve, and Federal Deposit Insurance Company jointly stepped in to rescue the market. This action represents that the Federal Reserve may slow down the pace of interest rate hikes in the future, so all risky assets have risen. The uncertainty of the global economy is high, and risk aversion factors have led to an accelerated flow of global funds into safe haven assets such as gold. Currently, Bitcoin has become one of the safe haven assets due to its global circulation and scarcity. In addition, the positive news has provided favorable conditions for the emergence of Bitcoin's short selling market. When the market leverage ratio is high, once the price rebounds, it will cause some highly leveraged positions to burst, which will accelerate the rise.
A cryptocurrency observer also told the surging news that the crisis of Silicon Valley Bank and Credit Suisse Bank has promoted the cryptocurrency and gold investment market, which has the function of saving value, and the risk will make the capital allocation more dispersed. The cryptocurrency market is very small in size, and a small amount of traditional funds can trigger significant fluctuations. The 2013 Cyprus banking crisis caused Bitcoin to almost double in the short term
The banking industry is facing crises, which often leads to a decrease in investor and public confidence in the traditional financial system. Yu Jianing believes that this may lead more people to seek more secure and decentralized alternative solutions, paying attention to and accepting encrypted assets. On the other hand, the crisis of Silicon Valley Bank, Credit Suisse Bank and other banks may lead regulators to pay more attention to the security and stability of the financial system. In the long run, it may lead to stricter regulation of the crypto asset sector.
Pengpai News (www.thepaper. cn) has noticed that there are many crypto friendly banks that have failed this year, such as Yinmen Bank and Signature Bank.
Signature Bank
Yu Jianing believes that the collapse of encryption friendly banks may have some negative impacts on the encryption field, especially in the short term. This mainly includes a decrease in trust, an increase in transaction costs, and an increase in investment risks.
Specifically, on the one hand, encrypted assets need to interact with traditional financial systems, including deposits, withdrawals, transactions, etc. The collapse of crypto friendly banks such as Signature Bank and Yinmen Bank will lead to a decrease in investors' trust in the entire crypto financial ecosystem. On the other hand, the cost for investors to engage in crypto asset trading will continue to rise. Signature banks and bank gate banks are almost important gateways connecting the crypto asset field and traditional financial fields, and compliant institutional funds will face some difficulties, including the possibility of being forced to rearrange their financial assets and shift to alternative, usually higher risk banks.
In addition, the failure of crypto friendly banks may lead to increased investment risk for investors in crypto assets. Because this indicates that even though crypto friendly banks have a high reputation and reputation in the field of crypto assets, they still face the risk of failure, thereby exacerbating the risk and uncertainty of crypto assets.
Bitcoin's rise may be related to the expected slowdown in US inflation
According to foreign media analysis, the rise in Bitcoin is due to the upcoming release of US Consumer Price Index (CPI) data on April 12th local time. Foreign media have stated that if the CPI report shows a decrease in inflation, it may be a potential catalyst for the rise of Bitcoin.
The above cryptocurrency observers analyzed that the reason for the increase is related to the expected slowdown in inflation in the United States. If inflation slows down, the pace of interest rate hikes in the United States will slow down, which is a good thing for the investment market. Not only for the crypto market, but also for other markets
Yu Jianing stated that as an investment target, the price of Bitcoin is usually related to various factors, including market demand and supply, government policies, investor sentiment, technological innovation, etc. In some cases, the price of Bitcoin may be related to inflation and monetary policy. If the US CPI data for this month is relatively optimistic, it indicates that the Federal Reserve's policy of raising interest rates will relatively slow down, which will increase market confidence in the short term, reflected in price increases.
On the other hand, Yu Jianing emphasized that the fluctuation of Bitcoin prices is influenced by many factors. Therefore, the impact of CPI data release on the rise in the price of special currency may be limited and should not be the only factor.
The cryptocurrency observers mentioned above admit that before the United States officially withdraws from interest rate hikes, there will be no major bull market in the cryptocurrency market, and overall, it will be mainly a mid level rebound and broad volatility market.
Yu Jianing stated that in response to the current development process of the encryption industry, it is first necessary to recognize that a significant pullback in various asset markets after continuous increases is a very normal phenomenon, and a significant bull bear transition has been experienced multiple times in the encryption industry. The crypto asset market will continue to maintain high volatility, and it is not ruled out that there will be a deep correction in the future, but the long-term trend will continue
Yu Jianing pointed out that just like the traditional financial market, the crypto market also has the cycle logic of assets and business cycle, which can be roughly divided into four stages: recovery period, overheating period, recession period and stagflation period. During the recovery period, the core asset is Bitcoin. In the overheating period, Bitcoin will be relegated to the second tier, and new assets will be on the stage. A recession is a very fast and intense process, and entering it will result in severe trampling by traders. The stagflation period is the most difficult and painful stage, and it is also a key node for the emergence of new applications.
The current stage we are in is a recession period where funds flow out, asset prices decline, emerging assets collapse in large numbers, and even multiple safety issues occur. During a recession, only some high-quality assets will remain, and we need to realize that the tide is receding to see who is a good asset, "said Yu Jianing.
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