Source: Economic Observer
Li has been in the cryptocurrency industry for more than five years and has been working as a trader. He currently manages a fund that specializes in cryptocurrency investments. The fund's cumulative investment in Bitcoin has exceeded $1 million.
The volatile market of Bitcoin has made traders like Li walk on thin ice. According to data from Coinglass, a crypto derivatives data analysis platform, since November, nearly 200,000 Bitcoin positions have been liquidated every day, with a total amount of about US$500 million.
Zhu, an individual investor in Beijing, called Bitcoin players "a group of gamblers" and felt that investing in Bitcoin was like licking blood on the tip of a knife.
Since September, the price of Bitcoin has skyrocketed, rising from $58,000 to $90,000 in more than two months, an increase of more than 50%. In 2024, the cumulative increase in the price of Bitcoin has exceeded 100%. From the perspective of investment returns, the growth of global mainstream alternative investment products such as gold and crude oil during the same period is far inferior to that of Bitcoin. Among them, the best performing gold has a year-to-date increase of 24%.
Data from CompaniesMarketCap, a global mainstream asset market value ranking website, shows that among the top ten global assets, gold ranks first with a market value of 17.20 trillion US dollars, and the total market value of Bitcoin is 1.75 trillion US dollars (approximately 12.67 trillion yuan), surpassing silver to become the world's eighth largest asset.
Bitcoin was born in 2008 and began to be known and traded by investors in early 2009. From a few cents per coin at the beginning to tens of thousands of dollars today, the price of Bitcoin has skyrocketed like a rocket, leaving investors dumbfounded.
Some people believe that Bitcoin is "digital gold" and has considerable room for growth. Others believe that Bitcoin is the biggest financial bubble in history, far exceeding the Dutch tulip bubble. In the early 1630s, a tulip root in the Netherlands was sold for up to 6,700 Dutch guilders, which could buy a mansion by the Amsterdam canal.
Compared with other major asset classes, Bitcoin has the most distinct differences and controversies, and has the most dramatic surges and plunges. Some people "weave" dreams of getting rich quickly because of it, while many others are washed out.
Behind the surge
In September, Bitcoin started this round of skyrocketing price.
Li found that market investors are mainly concerned about the results of the US election. Cryptocurrency is considered part of the "Trump trade."
Trump has repeatedly stated during the campaign that the innovative spirit and autonomy of Bitcoin and cryptocurrencies are in line with the core values of the United States. He emphasized that if the United States does not take the lead in embracing cryptocurrencies, other countries will dominate this field. Therefore, Trump plans to support cryptocurrencies in the form of policies to enable the United States to take the lead in global Bitcoin and blockchain technology.
Since Trump won the US presidential election, Bitcoin has started to surge.
On the evening of November 10, Bitcoin broke through the $80,000 mark. It took only three days for Bitcoin to break through the $90,000 mark. Late at night on November 13 (Beijing time), the price of Bitcoin skyrocketed, breaking through the three barriers of $90,000, $91,000, and $92,000, setting a new historical high.
From November 1 to November 14, the cumulative increase of Bitcoin exceeded 32%. From the beginning of 2024 to date, the price of Bitcoin has soared by more than 100%.
A Bloomberg Economics research report pointed out that on November 5, 2024, Trump's victory in the election, coupled with the possibility that the new government will introduce regulatory policies that are favorable to cryptocurrencies, caused the price of Bitcoin to soar.
UBS Wealth Management's Chief Investment Officer Office (CIO) said that as the market believes that Trump supports digital assets, the price of Bitcoin has soared to a record high. The rise was driven by Trump's campaign promises, including the establishment of a strategic Bitcoin reserve, and the market expected that the US Congress may be more inclined to support cryptocurrencies in the future.
There are two main factors for this round of Bitcoin surge. One is that Trump's victory triggered a bullish sentiment on Bitcoin. Before the election, Trump announced that "if he can return to the White House, he will list Bitcoin as a strategic reserve asset of the United States." Another major reason is that the world's top wealth management institutions represented by BlackRock invested hundreds of millions of dollars in real money to buy Bitcoin. Previously, BlackRock's CEO said that "Bitcoin is comparable to gold in investment potential."
“The boost from confidence and capital has led to this round of Bitcoin surge.”
Li found that as more and more institutional investors and listed companies began to allocate Bitcoin, the market demand for Bitcoin continued to increase.
For example, Boyaa Interactive disclosed on November 12 that the company has held 2,641 bitcoins, with a total cost of approximately US$143 million, and an average cost of approximately US$54,000 per bitcoin; it has held 15,400 Ethereums, with a total cost of approximately US$42.5781 million, and an average cost of approximately US$2,756 per Ethereum.
The inflow of institutional funds has undoubtedly injected new vitality into the Bitcoin market. However, as a highly volatile asset, the price of Bitcoin is affected by many factors, including global economic conditions, policy changes, market demand, etc. Therefore, when investing in Bitcoin, overseas investors should be cautious, be sensitive to market dynamics, and do a good job of risk management.
"All People"
In May 2023, Li and his boss jointly set up a studio overseas, focusing on investing in cryptocurrencies including Bitcoin. At that time, the price of Bitcoin hovered around more than $20,000. When the team was first established, there were only four people. They studied trading strategies and market events, hoping to make profits in volatile markets. As time went on, their team gradually grew. By March 2024, they began to manage funds from some compliant funds in Hong Kong, with a cumulative scale of more than $2 million, of which assets invested in Bitcoin accounted for about 50%, more than $1 million.
Li said that since May 2023, the overall trend of cryptocurrency, including Bitcoin, has been upward. So far, the fund's overall investment return rate has accumulated to about 80%.
Li did not dare to slack off. Because cryptocurrency trading is open 24/7, his team must always be alert and ready to deal with every storm in the market. They implemented a "three-shift" work mode to ensure that someone was watching the market 24 hours a day.
Risks and benefits coexist. He admitted that his experience of investing in digital currencies was painful. Recently, the Bitcoin market has fluctuated greatly, and some of the Bitcoin contracts he purchased have been liquidated. "It is common in the cryptocurrency circle to become poor overnight.
The Economic Observer found that since September, the price of Bitcoin has skyrocketed, the number of discussion groups about Bitcoin on Internet platforms has increased, and some investors who have never been exposed to Bitcoin are eager to try it out.
Huang Jun told the Economic Observer that the huge volatility of Bitcoin and the use of leverage in trading can easily cause investors to make huge profits or losses. Investors tend to be blindly optimistic and think they are lucky, especially some young people who are eager to change their lives. It is often the right choice for investors to make decisions after recognizing the risks of Bitcoin trading.
Controversy continues
Why has Bitcoin, which has been controversial but extremely popular in recent years, grown from zero to one trillion US dollars in 15 years?
Bitcoin, a virtual cryptocurrency with blockchain as its underlying technology, has gradually become popular around the world since its birth in 2008 due to its characteristics of "decentralization, anonymity, and free circulation", and voices questioning its value have never stopped. Historically, Bitcoin has experienced several sharp rises and falls, and each huge fluctuation in the market has touched the hearts of investors.
2017 was the most glorious year in the history of Bitcoin, with its price soaring from about $1,000 at the beginning of the year to nearly $20,000 at the end of the year, an increase of more than 20 times. Since December 2017, Bitcoin has entered a bear market, with prices falling all the way to about $3,200 at the beginning of 2019, a drop of 84%. This round of decline is related to factors such as stricter global regulation.
At that time, some institutions believed that Bitcoin supporters may have placed too high expectations on it, selectively ignored its shortcomings and limitations, and greatly magnified the possibility that it was out of reach. Investors should perhaps be aware that Bitcoin is the most "pure" asset price bubble in human history, and the ups and downs of its price may be nothing more than a "liberal dream."
In 2019, blockchain technology was vigorously developed and received more and more policy support, which provided an optimistic environment for the Bitcoin market. The price of Bitcoin once again rebounded to around $10,000. Afterwards, the global financial market was hit hard by the COVID-19 pandemic, and the cryptocurrency market was not immune. In March 2020, Bitcoin fell again to $4,000.
From 2020 to 2024, the price of Bitcoin fluctuated repeatedly. Starting from September 2023, Bitcoin fluctuated upward. By March 2024, the price of Bitcoin exceeded US$70,000 at its highest, and now it has exceeded US$90,000.
There is no doubt that Bitcoin has gradually become the most controversial asset in the past decade. Investors are wondering what the asset attributes of Bitcoin are.
Looking at the foreign markets, the U.S. Securities and Exchange Commission approved the spot Bitcoin ETF (Exchange Traded Fund) in January 2024, and in October "accelerated approval" for option trading of multiple Bitcoin spot ETFs.
CITIC Securities research report believes that although the SEC expressed disapproval of Bitcoin while approving the listing of the Bitcoin spot ETF in October, the act of incorporating this type of emerging asset into the framework of traditional financial transactions may itself strengthen the market's recognition of private cryptocurrency assets and enhance the credibility of private cryptocurrencies such as Bitcoin.
This is a milestone event, representing the most important step for the crypto asset class to gain mainstream adoption. In his eyes, Bitcoin is equivalent to alternative assets or other assets, even financial assets.
But it is not a safe-haven asset and still belongs to risky assets. Although it has the properties of anti-inflation and safe-haven assets, it is still a risky asset.
UBS Wealth Management’s Investment Director Office stated that they prefer to view crypto assets as a speculative trading tool rather than a strategic allocation asset in an investment portfolio. It is skeptical of significant advances in meaningful and disruptive real-world uses of crypto-assets and believes the asset class could significantly increase portfolio volatility. Taking Bitcoin as an example, the cryptocurrency's performance is positively correlated with global stock indexes, with a correlation coefficient of 0.31 and an annualized volatility of 78.8%. This means that Bitcoin tends to move in the same direction as the market, but at significantly greater amplitudes. Since 2014, Bitcoin has experienced three major retracements of over 70%, taking an average of three years to recover. In contrast, CIO continues to be optimistic about global and U.S. stocks and believes that the favorable macro backdrop may further benefit stocks.
Beware of investment risks
On November 12, when the price of Bitcoin approached $90,000, Li chose to sell 50% of his position. He believed that preserving the principal was the most important thing.
As a trader, he has not sold his bitcoins yet. He believes that the market is always full of uncertainty, and if you don't grasp the timing well, you may face the risk of "selling at a loss". At present, the market has not reached the level of madness he expected.
Regarding the future trend of Bitcoin, Huang Jun believes that in the global market, Bitcoin-related financial instruments are becoming more and more abundant, which will attract funds from institutional investors to flow into Bitcoin. In addition, with the end of the US election, the favorable policy trend related to Bitcoin is expected to continue in the future, and it is not far-fetched for the price of Bitcoin to rise to a higher level, and even breaking through $100,000 is not an unattainable number.
However, Huang Jun said that investors need to be wary that an upward trend does not mean that buying will make money. From 2021 to 2022, the price of Bitcoin fell from nearly $70,000 to $15,000, a drop of nearly 80%. There have been many cases where the price of Bitcoin has fallen by more than 10% in a single day, and sometimes even by 20%. The huge volatility and the fact that most Bitcoin investors use leverage still pose risks to investors.
In addition, Chinese regulators have paid attention to the financial risks it may bring and have adopted a cautious and restrictive attitude towards Bitcoin.
