"Foreign media are shorting China"! Three major negative factors trigger capital flight to the "crypto market"?
Today, Bitcoin and other large digital currencies have soared to dizzying heights. "Fear of missing out" (FOMO) has undoubtedly attracted hesitant investors and outright speculators to the market, but many people still don't know how cryptocurrencies work.
Research confirms that although China drives nearly 80% of the world's Bitcoin trading volume and investors control 1/7 of the world's Bitcoin reserves, many citizens are overly pursuing short-term gains. Some people regard it as an illegal currency and expect to achieve "overnight wealth" through Bitcoin; others regard it as an investment product and focus on predicting its future appreciation ability.
The British newspaper The Guardian pointed out that the crackdown on Chinese billionaires, sluggish economic growth and falling stock markets are triggering a large outflow of funds from China. The report mentioned that in the first half of 2023, China's balance of payments gap was US$19.5 billion, which is an indicator of capital flight, and the real number may be many times higher.
Immigration consultants said that Chinese are snapping up luxury apartments in Singapore and elsewhere, and thousands of wealthy Chinese families are leaving the country. Driven by this outflow of Chinese capital, Singapore surpassed Hong Kong to become the financial capital of Asia in just a few years. Of course, the reason they chose Singapore was not mainly because the Singapore Exchange was more convenient for shorting Chinese stock indexes, but because Singapore had vigorously promoted the development of cryptocurrencies in the past few years and became the center of global cryptocurrencies.
You should know that the biggest benefit of cryptocurrency to investors is that it can flow freely overseas without regulatory constraints. When Singapore implemented an open policy for cryptocurrency, Bitcoin could be exchanged for cash at any place in Singapore at any time, and Chinese funds began to love Bitcoin from then on.
In order to maintain Hong Kong's financial status, the Hong Kong Special Administrative Region Government also implemented the free exchange of cryptocurrencies last year. Now, to exchange Bitcoin in Hong Kong, you only need to go to a street store to exchange between cash and cryptocurrency without facing any review. There are 450 stores, ATMs and websites in Hong Kong that provide such services.According to Chainalysis, they are an important part of over-the-counter or over-the-counter cryptocurrency trading, accounting for most of the $64 billion in digital assets flowing through Hong Kong from China as of June.
At the beginning of this year, the Bitcoin ETF was welcomed by a large number of mysterious domestic funds as soon as it was launched. According to data from The Block, Asian investors were extremely active in this round of Bitcoin's rise. Investors in Asian countries account for about 70% of Bitcoin's trading volume. In the cumulative $1.17 trillion in Bitcoin transactions in February 2024, Asian investors contributed $791 billion, while North American investors accounted for only $113 billion. Therefore, it is no secret that this round of cryptocurrency bull market is almost driven by the transfer of assets by wealthy Chinese.
So far, Bitcoin has once again accumulated strength from around $70,000 to sprint to its previous high. As for the future trend of Bitcoin, the market has been seriously divided. Both the long and short sides have made heavy bets on their respective futures, and the war is in full swing.
Since Bitcoin approached the historical record in March, tens of thousands of people have been liquidated every day because of the wrong direction of betting. According to Coinglass data, in the 24 hours of March 6 alone, about $818 million of bullish cryptocurrency bets and $235 million of bearish cryptocurrency bets in the crypto derivatives market were liquidated. Since March, the total amount of funds liquidated daily has exceeded $1 billion, which is one of the highest figures since the birth of Bitcoin. A trading day can see a fluctuation of about 14%. The market volatility of Bitcoin has reached an all-time high, and both parties involved in the betting have been killing.
In this game, the bulls led by market makers and miners completely monopolized the entire market. When the bears were still guessing the future price changes through changes in interest rates and related markets, the bulls had already known the Fed's movements through secret information channels, and even influenced its decision-making.
More importantly, because of the continuous rise of Bitcoin, a large number of bulls have influxed, forcing traders and market makers to hedge their risk exposure. The usual way for cryptocurrency exchanges to hedge is to buy basic cryptocurrency tools so that they will not face directional risks. If Bitcoin starts to rise, traders will have to hedge further and thus buy more of the underlying token.
If bulls take advantage of this and keep buying, it will create a long-short squeeze. This self-perpetuating cycle will cause prices to rise rapidly, causing cryptocurrency exchanges to have to purchase more underlying tokens in order to ensure delivery.
Although $70,000 is difficult at present, the bearish power is relatively weak and may not be an obstacle to the bulls. However, because Bitcoin bulls have accumulated a large number of highly leveraged positions from derivatives, if short sellers can successfully push the price below the key position, it will cause bulls to liquidate their positions one after another, triggering a Bitcoin avalanche, and the price will plummet. US$70,000 is an important turning point in the psychological dividing line between long and short.
Summarize
As the market begins to bet on whether Bitcoin will rise or fall after the halving event, countless investors are staying up all night on this issue. However, the cryptocurrency market is highly volatile and prices may fluctuate violently. Investors should have a clear investment plan and long-term vision, and should not blindly chase short-term gains or be driven by "FOMO".
