Recently, the most eye-catching aspect of the capital market is the rapid rise of bitcoin.
This Monday during U.S. trading hours, bitcoin reached 107,000 dollars per coin, setting a new record high, with an intraday increase of over 3%. From about 40,000 dollars at the beginning of the year, bitcoin's increase this year has exceeded 170%.
What exactly is bitcoin? This article will help you understand the past and present of bitcoin.
15 years, from a few cents to 100,000 dollars
The story of bitcoin dates back to 2008, when someone using the pseudonym “Satoshi Nakamoto” proposed the concept of bitcoin and introduced a brand new electronic cash system, which is the prototype of bitcoin.
Unlike most currencies today, bitcoin is not issued by a specific currency institution (such as the government) but relies on specific algorithms for calculation. This algorithm platform generates solutions based on a distributed architecture program.
Bitcoin is actually encrypted data based on blockchain technology. For example, the issuance mechanism of bitcoin is to solve a system of mathematical equations, with the solution corresponding to a bitcoin code. The process of obtaining bitcoins is equivalent to solving equations, which means everyone has the opportunity to participate in the issuance of bitcoins. The total quantity of solutions to this system of equations (the total amount of bitcoins) is constant at 21 million.
The earliest bitcoins were produced through a process called “mining.” Computers with strong computing power solve complex mathematical problems to obtain bitcoins. This process is like digging for gold; whoever digs it up owns it, hence the term “mining.”
Limited quantity means bitcoin's scarcity, leading people to believe that bitcoin has value preservation properties. At the same time, rarity gives rise to its speculative value.
Initially, the value of bitcoin was negligible, but with technological advancements and market maturation, it gradually became a highly regarded investment asset. The following set of numbers can illustrate how popular bitcoin has become.
When bitcoin first appeared in 2009, 1 dollar could buy about 1300 bitcoins.
In May 2010, 1 bitcoin = 0.25 cents
In June 2011, 1 bitcoin = 30 dollars
On April 9, 2013, 1 bitcoin = 260 dollars
On November 4, 2024, 1 bitcoin = 68,000 dollars
On December 5, 2024, it broke 100,000 dollars
Madness continues, risks remain
What is bitcoin's price fluctuation related to? Hu Jie, a professor at Shanghai Jiao Tong University's Shanghai Advanced Institute of Finance and a former senior economist at the Federal Reserve, stated in an interview that assets like bitcoin have no intrinsic value and do not distribute any cash externally, so its price trend depends on how many people trade it, especially how many people will come to speculate in the future, how much money they have, and their mindset.
Yu Jianing, co-chairman of the Blockchain Professional Committee of the China Communication Industry Association and honorary chairman of the Hong Kong Blockchain Association, stated that the recent surge in bitcoin prices is the result of multiple factors. From a macro perspective, global economic uncertainty and changes in monetary policy are important factors driving the rise in bitcoin prices. Adjustments in the Federal Reserve's monetary policy and the market's increased expectations for liquidity easing have made risk assets popular among investors again. Additionally, the U.S. election has further boosted the market's optimistic sentiment towards the future of bitcoin.
At the same time, the scarcity on the supply side of bitcoin has further boosted its price. Yu Jianing pointed out that bitcoin's halving mechanism is triggered every four years, leading to a halving of the block reward. In April this year, bitcoin completed its fourth halving, directly reducing the supply of new coins, reinforcing bitcoin's characteristics as a scarce asset. Historically, the market price of bitcoin usually experiences significant upward cycles before and after halving.
With the continuous rise in bitcoin prices, market sentiment has also warmed up accordingly. Analysts from international institutions predict that by the end of this year, the price of bitcoin may reach 125,000 dollars per coin, and by the end of 2025, it may even reach 200,000 dollars per coin.
The rise in bitcoin prices is eye-catching, but the underlying risks should not be ignored. Yu Jianing pointed out that the combination of high volatility and high leverage is one of the most prominent risk points in the crypto market. During periods of high market sentiment, investors tend to use high-leverage tools to pursue higher returns, but once the market direction reverses, the risks of high-leverage accounts can accumulate rapidly, leading to market panic and large-scale liquidation events.
There are legal risks associated with trading bitcoin domestically.
It should be noted that in China, engaging in activities related to bitcoin and other virtual currencies is considered illegal financial activity.
China was once the largest country in terms of bitcoin trading volume and mining power, accounting for over 80% at one point. However, after the closure of exchanges, the exit of mining operations, and the prohibition of trading, activities related to virtual currencies within China are considered illegal financial activities, and foreign virtual currency exchanges providing services to residents in our country are also classified as illegal financial activities.
The cleanup and rectification of bitcoin-related activities can be traced back to 2017.
On January 6, 2017, the relevant departments of the central bank interviewed three bitcoin exchanges in Beijing and Shanghai—Huobi, OKCoin, and Bitcoin China. On February 8, regulators conducted on-site investigations at Huobi, OKCoin, and Bitcoin China. Subsequently, the central bank interviewed the main responsible persons of nine other bitcoin trading platforms engaged in bitcoin trading in Beijing.
On May 21, 2021, the Financial Stability Development Committee of the State Council held its 51st meeting to study and deploy key work in the financial sector for the next stage. The meeting required a crackdown on bitcoin mining and trading activities, firmly preventing individual risks from spreading to the social sphere.
On September 24, 2021, the National Development and Reform Commission and 11 other departments issued a notice regarding the rectification of virtual currency “mining” activities, banning the addition of new virtual currency “mining” projects and accelerating the orderly exit of existing projects. At the same time, virtual currency “mining” activities will be officially classified as an obsolete industry. On the same day, the central bank and 10 other departments issued a notice on further preventing and handling risks of speculation in virtual currency trading, clarifying that activities related to virtual currencies are illegal financial activities, and that foreign virtual currency exchanges providing services to residents in our country via the Internet are also classified as illegal financial activities.
