Recently, nothing has attracted attention in the capital markets more than the rapid rise of Bitcoin.
This Monday during U.S. trading hours, Bitcoin reached 107,000 dollars each, setting a new record high, rising over 3% in a single day. Calculating from around 40,000 dollars at the beginning of the year, Bitcoin's increase this year exceeds 170%.
What exactly is Bitcoin? This article helps 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 monetary institution (such as the government) but is generated through specific algorithms. This algorithm platform generates solutions based on a distributed architecture.
Bitcoin is actually encrypted data based on blockchain technology. For example, the issuance mechanism of Bitcoin involves solving a set of mathematical equations, where the solution corresponds to a Bitcoin code. The process of obtaining Bitcoin is equivalent to solving equations, meaning everyone has the opportunity to participate in the issuance of Bitcoin. The total amount (the total supply of Bitcoin) is fixed at 21 million.
The earliest Bitcoins were generated through a method called 'mining.' Those computers with powerful computing abilities earned Bitcoins by solving complex mathematical problems. This process is similar to mining for gold; whoever mines it owns it, hence the term 'mining.'
Limited supply implies the scarcity of Bitcoin, which leads people to believe that Bitcoin has value retention properties. At the same time, things that are scarce are precious, which gives rise to the speculative value of Bitcoin.
Initially, the value of Bitcoin was negligible, but with technological advancements and market maturation, it gradually became a highly sought-after investment asset. How hot is Bitcoin? The following set of numbers can illustrate that.
When Bitcoin first appeared in 2009, 1 dollar could buy nearly 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 will break 100,000 dollars.
Crazy and relentless, the risks are not over.
What is Bitcoin's price volatility related to? Hu Jie, a professor at the Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, and former senior economist at the Federal Reserve, stated in an interview that assets like Bitcoin have no intrinsic use value and do not distribute any cash externally, so their price movements depend on how many people trade them, especially how many people come in to speculate, and how much money and mentality the new entrants have.
Yu Jianing, co-chairman of the Blockchain Professional Committee of the China Communications 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 working together. From a macro perspective, global economic uncertainty and changes in monetary policy are important factors driving the rise in Bitcoin prices. The adjustment of the Federal Reserve's monetary policy and the increased market expectations for liquidity easing have made risk assets favored by investors again. Additionally, the U.S. election has further boosted market optimism about the future of Bitcoin.
At the same time, the scarcity of Bitcoin on the supply side has further propelled its price increase. Yu Jianing pointed out that Bitcoin's halving mechanism is triggered every four years, resulting in a halving of the block reward. In April of this year, Bitcoin completed its fourth halving, directly reducing the supply of new coins and reinforcing Bitcoin's characteristic as a scarce asset. Historically, the market price of Bitcoin usually experiences significant upward cycles before and after halving.
As the price of Bitcoin continues to rise, market sentiment also heats up. Analysts from international institutions predict that by the end of this year, the price of Bitcoin may reach 125,000 dollars each, and by the end of 2025, it could even reach 200,000 dollars each.
The surge in Bitcoin prices is eye-catching, but the risks lurking behind cannot 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. When market sentiment is high, 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.
Trading Bitcoin within the country carries legal risks.
It should be noted that engaging in activities related to Bitcoin and other virtual currencies within China is considered illegal financial activity.
China was once the country with the largest trading volume and mining computing power for Bitcoin, accounting for more than 80% at one point. However, after shutting down exchanges, retiring mining operations, and banning trading, engaging in activities related to virtual currencies within China is now considered illegal financial activity, and providing services to residents in China via foreign virtual currency exchanges on the Internet is also classified as illegal financial activity.
The cleanup and regulation of activities related to Bitcoin can be traced back to 2017.
On January 6, 2017, the central bank's relevant departments interviewed three Bitcoin exchanges in Beijing and Shanghai—Huobi, Bihang, and Bitcoin China. On February 8, regulators conducted on-site investigations at Huobi, Bihang, and Bitcoin China. Subsequently, the central bank interviewed the main persons in charge 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 phase. The meeting required a crackdown on Bitcoin mining and trading activities, firmly preventing individual risks from spreading to the social field.
On September 24, 2021, the National Development and Reform Commission and 11 other departments issued a notice (on rectifying virtual currency 'mining' activities), prohibiting 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 also be formally classified as an eliminated industry. On the same day, the central bank and 10 other departments issued a notice (on further preventing and dealing with the risks of virtual currency trading speculation), clarifying that activities related to virtual currencies are illegal financial activities and that foreign virtual currency exchanges providing services to residents in China via the Internet are also classified as illegal financial activities.
