Article source: OKLink by OKG Research
Produced by | OKG Research
Author | Hedy Bi
This Tuesday, the reversal trend of the overnight 'Trump Trade' affected the Bitcoin market. Bitcoin prices surged to about $99,000 before quickly falling back below $93,000, with a maximum drop of over 6%. This was triggered by rumors of a potential ceasefire agreement between Israel and Lebanon, causing market turbulence. Not only Bitcoin, but gold and oil prices also dropped significantly in response.
Due to the growth performance of Bitcoin over the past month (40%+), the risk sensitivity of its investors has also been amplified. Is this 40% gain a beginning or an end? I believe this is a short-term impact of a single event; if external macro conditions remain unchanged for the long term, liquidity may not allow this cycle to come to a sudden halt.
Liquidity is the 'cause' of risk assets
From a macro perspective, on September 18, 2024, the Federal Reserve lowered interest rates by 50 basis points to 4.75%-5.00% for the first time since 2020, ending a 525 basis point rate hike cycle. As Bobby Axelrod said, 'Power is not everything, but without power, you are nothing.' The Federal Reserve's influence on Bitcoin leads it to find a balance between liquidity flooding and hedging inflation demands. Bitcoin serves as both a lever for US stocks and a tool for hedging inflation, with interest rate cuts releasing liquidity and injecting broader space for risk assets. Meanwhile, potential economic fluctuations and policy uncertainties make cryptocurrencies like Bitcoin a choice for 'hedging real-world risks.'
Source: Christopher T. Saunders, SHOWTIME
As Trump resumes his presidency and forms a new team, implementing a series of fiscal stimulus policies to ensure 'America First,' increased government spending will further drive market liquidity. Additionally, during his campaign, Trump proposed plans to establish a national Bitcoin reserve, using cryptocurrency to weaken the dollar's competitors. As Trump and his team consider appointing regulatory officials who are friendly to cryptocurrencies, this also promotes the establishment of a US-led international cryptocurrency regulatory framework.
However, there are also voices questioning the rate cuts, shouting that 'a financial crisis is imminent.' According to MacroMicro's US recession index (likelihood), the probability of a recession in the United States in November 2024 is 24.9%. Compared to the previous economic recession triggered by the financial crisis, if this round is a recession cycle, it may peak in 6 months. In the game between liquidity and inflation hedging, Bitcoin in this economic adjustment cycle reflects more of its sensitivity to liquidity changes.
Source: MacroMicro
Institutions: Have exceeded the 5% key threshold
Under these macroeconomic conditions, Bitcoin has also attracted institutional liquidity. Since the Bitcoin spot ETF channel opened in January 2024, according to statistics from OKLink Research Institute on November 21, global Bitcoin spot ETFs have accounted for 5.63% of the total Bitcoin supply. A 5% shareholding ratio is typically a key threshold in the financial industry; for example, under SEC regulations in the United States, shareholders holding more than 5% must report to the SEC.
Bitcoin Holding Distribution | Source: OKG Research, bitcointreasuries, public news
In addition to Bitcoin spot ETFs, listed companies have also taken action in such a political environment. According to incomplete statistics from OKLink Research Institute, since November 6, 17 listed companies in the United States and Japan have announced holdings or board approvals to use Bitcoin as a reserve asset. Among them, MicroStrategy stands out by purchasing 55,500 Bitcoins for $5.4 billion between November 18 and 24. Currently, only 0.01% of listed companies globally hold Bitcoin, indicating that this is just the tip of the iceberg for large institutions' purchasing power, and the market is still in the 'elite experimental stage.'
OKLink Research Institute conservatively estimates that the statistically available funds entering Bitcoin within the next year will be approximately $22.8 trillion (Note 1), and these asset volumes could push Bitcoin prices to around $200,000, consistent with predictions from Bernstein, BCA Research, and Standard Chartered Bank.
Estimated funds to be invested by institutions | Source: OKG Research (Note 1)
Bubbles lead the way, how to hedge against rising milk prices?
Liquidity benefits have been questioned by the market for being excessive as various events unfold, transforming from the 'Trump Trade' to the 'Trump Bubble.' Tyler Cowen, author of The Great Stagnation, believes that bubbles favor the concentration of capital in emerging industries and innovation projects, increasing market acceptance of high-risk early projects, thereby encouraging entrepreneurs and investors to take bold risks and innovate. Just as the 'internet bubble' of the 1990s laid the groundwork for the internet+ era after it burst in 2000, if government spending (stimulus policies) timelines are clearly defined in the Trump administration, aggressive government spending may raise suspicions of liquidity excess and 'bubbles,' leading the crypto market to have 'value chase price.'
It is also important to note that in my qualitative assessment of Bitcoin, I previously suggested that Bitcoin serves both as a lever for US stocks and as a hedge against real-world risks, which makes Bitcoin oscillate between liquidity and inflation hedging. For the most perceived prices by the public, from 2019 to 2024, the average price of milk in the United States increased from about $2.58/gallon to $3.86/gallon, an increase of about 49.22%. During this period, Bitcoin's increase was approximately 1025%, while gold's increase was about 73%, slightly exceeding the risk asset representative index, the S&P 500 (about 40%).
Some countries have even chosen to invest in Bitcoin to protect their wealth from inflation erosion. For example, El Salvador and the Central African Republic adopted Bitcoin as legal tender, while Bhutan mines Bitcoin, attempting to leverage its scarcity and decentralization to hedge against inflation risks.
In the current macro environment, regardless of short-term volatility, the fixed scarcity of Bitcoin at 21 million, decentralization, and global liquidity remain unchanged. Its process towards a role as a store of value is being accelerated by institutions and listed companies competing to allocate it. This financial experiment that began with cypherpunks will ultimately find its footing in the real world.
Note 1: The method of measuring the amount of funds:
a. Government funds and pension funds select countries and states that currently allow investment in Bitcoin, choosing 2% as the investment ratio, and different CAGR for each country and region as the growth rate for the next year, for example, 8.9% for the United States, 4.22% for the United Kingdom, and an average of 3% for Nordic countries.
b. The strategic reserve funds of listed companies are calculated based on the cash assets of the major global stock markets (US, Germany, Japan, UK, South Korea, Hong Kong, Singapore, India, Brazil, Australia, Canada, Taiwan) (market capitalization multiplied by 5%, with Microsoft's ratio being 9.5%), and multiplied by a growth factor (calculated that the CAGR of global stock markets over the past ten years is 9.68%) and then by an investment ratio of 10% for calculation.
c. Private companies calculate in sync based on the currently disclosed 90% weight of public companies. d. The wealth management industry, according to survey reports from Morgan Stanley, Capgemini, Accenture, etc., indicates that 71% of high-net-worth individuals have already invested in Bitcoin, with the remaining investable wealth of high-net-worth individuals multiplied by a growth factor of 4.5% and then by an investment ratio of 5% for calculation.
*The content mentioned in this article is solely for market observation and trend analysis and should not be considered as specific investment advice.
