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Gu Yanxi: Why is Bitcoin considered a safe-haven asset in the US market?



In the U.S. market, Coinbase, which provides encrypted digital currency transactions, will be listed on April 14. Coinbase generated $1.8 billion in revenue in the first quarter of 2021, surpassing last year's full-year revenue of $1.3 billion. The profit ceiling for the first quarter could be $800 million. Registered users were 56 million, up from 43 million in the previous quarter. With such a growth rate, the scale of revenue and profit far exceeds that of existing stock exchanges. The main trading product of Coinbase is Bitcoin, which shows how popular the market is with Bitcoin.

In addition to Coinbase's listing factors, other market behaviors also indicate a high degree of market attention to Bitcoin. Some well-known insurance companies such as Mass Mutual, New York Insurance Company, Liberty Mutual and Starr have begun to jointly develop Bitcoin-based insurance products. Well-known investment banks in the United States have also begun to provide bitcoin-related businesses. The most radical of these was Morgan Stanley. Morgan Stanley is investing heavily in bitcoin's market infrastructure, while also offering bitcoin-related services to its wealth clients. In addition, as of today, 9 applications for the establishment of Bitcoin-based ETFs in the US market have been submitted to the US SEC. These and other developments in the market indicate that the U.S. market is increasingly placing value on Bitcoin.

Gu Yanxi: The demand for BTC leads to an increase in USDT, and most of the Diem USD will flow into BTC: On February 13, Gu Yanxi, the founder of the American Liyan Consulting Company, tweeted that the demand for BTC led to an increase in USDT, not the other way around. From 2021 onwards, compliant USD stablecoins will grow rapidly. If anything happens to USDT, this will continue to sustain the growth of BTC, plus, a large part of Diem USD will flow into BTC. [2021/2/13 19:40:37]

Among the market's various judgments on the value of Bitcoin, one is to consider it a safe-haven asset. And such a view has its logic.

The rapid increase in the price of Bitcoin can be said to have started in March 2020. The monetary policy implemented by the Federal Reserve to rescue the crisis brought about by the epidemic has led to a large increase in the issuance of US dollars. The additional issuance of U.S. dollars will inevitably lead to the depreciation of the U.S. dollar and the inflated value of all assets priced in U.S. dollars. These assets include real estate and stocks. For institutional investors, they must consider how to deal with the actual depreciation of their own assets brought about by such market developments. They began looking at alternative assets that could hedge against such market risks. Among these alternative assets, the safe-haven value of Bitcoin has gradually been recognized by the market. As this recognition increased, more institutions and individuals began to hold Bitcoin. The safe-haven value of Bitcoin is embodied in the following aspects.

Gu Yanxi: The investment views and decisions of the founder of Bridgewater Fund on BTC are not applicable to ordinary investors: On February 1, Gu Yanxi, a researcher of blockchain and encrypted digital assets, published a column saying that the current market value of Bitcoin The total amount and compliance status are not suitable for Ray Dalio, the founder of Bridgewater Fund, as his main investment product. But that doesn't mean the average investor makes the same investment decisions based on his opinion. On the contrary, because the investment decisions of ordinary investors are more free and flexible, they can invest in some early but promising products, such as Bitcoin, before him. He pointed out in the article that Ray Dalio listed three risk factors for Bitcoin, namely volatility, regulatory risk and liquidity. These three factors are the main obstacles preventing Bridgewater and its clients from investing in Bitcoin. Gu Yanxi believes that among these three factors, financial regulators around the world will definitely cooperate to further regulate Bitcoin transactions. But these regulatory measures will regulate the bitcoin market and promote bitcoin as a mainstream trading product. As a result, the liquidity of Bitcoin transactions will be greatly improved, and the volatility will be correspondingly reduced. This therefore makes it easier for asset managers like Bridgewater to start investing in Bitcoin. For ordinary investors, it is possible to obtain the value-added income of this part of assets by holding Bitcoin before institutions such as Bridgewater Fund. Finally, Gu Yanxi also said that as the pioneer and leader of encrypted digital assets, Bitcoin has an irreplaceable position, and this position will only become stronger. For investors, this directly affects the proportion of Bitcoin in their investment portfolio. If an investor is right about Bitcoin's status, it will invest more of its money in Bitcoin rather than diversify its funds into other cryptocurrencies. [2021/2/1 18:34:30]

First, Bitcoin was designed as an electronic currency. It is designed to provide a monetary solution to existing fiat currencies. In its design, the total amount of Bitcoin is certain. This avoids the characteristics of additional issuance of legal currency. Moreover, the operation mechanism of Bitcoin is automatic operation, which is not controlled by any institution or individual. The mechanism for determining the total amount of bitcoins and obtaining them is now automatic. In the past 12 years of development, as the transaction of Bitcoin has become more and more common, a direct exchange transaction between Bitcoin and legal tender has been formed. Bitcoin can thus be priced based on various fiat currencies. Bitcoin is now turning into a store of value and payment tool as its usage and transactions become more widespread. Due to the above characteristics, especially the most basic characteristic that the total amount of Bitcoin is fixed, it can avoid such a mechanism of additional issuance of legal currency, thus forming a differentiated competition with legal currency. When there is a problem with the legal currency in the market, the funds in the market will naturally flow to a differentiated competitive product like Bitcoin.

Gu Yanxi: The new high of Bitcoin has become the tipping point for the development of encrypted digital finance, and this growth is more stable: On December 17, Gu Yanxi, a researcher of blockchain and encrypted digital assets, published a column saying that the price of Bitcoin reached 2 million U.S. dollars, making it a record high since its launch in January 2009. This record high of Bitcoin is not only a record high in the trading price of an encrypted digital asset, but also indicates that the development of encrypted digital finance has reached the tipping point. Encrypted digital finance will develop in an accelerated manner and will bring fundamental changes to the existing financial market. He pointed out that the most direct factor leading to new highs in Bitcoin prices is the supply and demand relationship of Bitcoin transactions. Subordinate factors are factors directly related to Bitcoin transactions. In addition, the increase in bitcoin holdings by various mainstream financial institutions is also a further recognition of bitcoin. All of the above factors have made the market expect that a large amount of funds will flow into the Bitcoin trading market, thus pushing Bitcoin to a record high. Gu Yanxi said that the rapid growth of bitcoin prices this time is fundamentally different from the growth in 2017. Factors leading to this growth include a more friendly regulatory environment, a more solid market infrastructure and the entry of institutional investors, while the growth in 2017 was mainly the result of speculation in the market by retail users. So this time the growth has a more solid foundation. Although the price trend of Bitcoin will still fluctuate greatly in the future, its growth trend is certain. [2020/12/17 15:29:51]

In terms of differentiated competition with fiat currencies, in practice, Bitcoin has increasingly shown its differentiated characteristics. When the currencies of some countries are highly inflated, the local bitcoin transaction volume has increased significantly. This is true in places like Argentina, Turkey and Nigeria. This shows that the market is accepting Bitcoin as a tool to compete with existing fiat currencies.

Voice | Gu Yanxi: The impact of Libra on the clearing network is actually the impact of the blockchain on the clearing network: this afternoon, the Guanhuo Shenzhen Thousand People Conference was held at the Sheraton Longhang in Shenzhen Greater China, in the "Open Finance" unit, CBX Research Gu Yanxi, the founder and dean of the Institute and an expert member of Huoxun's co-creation group, said in his speech "Libra's Impact and Risks on the Global Financial Industry" that Libra is an impact on the clearing network. The onslaught of liquidation networks. The influence of Libra is not limited to the banking sector but also includes the securities field. The central banks of various countries issue their own legal currency. It is not easy to exchange payments. If it is said to be traded from one legal currency area to another, it needs to be cleared between two clearing networks. However, the existing bank clearing network is not efficient on a global scale. After Libra came out, it was characterized by blockchain from the beginning. It was global from the beginning. World restrictions, the Libra clearing network and stable coins will soon circulate globally, which will have the greatest impact on the existing financial market, and commercial banks will also be a greatly impacted institution. In fact, in the Libra system The biggest impact is the association. It is precisely because of the association that it can promote the clearing network and stable currency on a global scale. If there are so many applications running on the network and the demand for stable currency is very large, then the conversion of existing legal currency into stable currency will be done in Libra. For commercial banks, this means that the deposits have decreased, the deposits have reduced the main business, and the loan business will be greatly affected. The securities industry is moving towards a clearing network, and now the network provided by Libra is likely to take the lead in promoting its own clearing business in asset transactions. [2019/8/11]

Another basic requirement for a safe-haven asset is its weak correlation with other mainstream assets. The smaller the correlation, the higher its value as a safe-haven asset. According to a recent report by Coindesk, the correlation between Bitcoin and gold and the S&P500 is now more and more tending to be 0, and the negative correlation with the US dollar has also begun to appear. Therefore, in terms of correlation with other assets, Bitcoin has more and more safe-haven value.

In the current US market, the continuous issuance of US dollars has caused widespread concerns about the depreciation of the US dollar. Therefore, the natural selection of the market can hedge against the risk of dollar depreciation. The recent increase in market interest in silver and uranium both point to this risk-off trend. Bitcoin has also become the choice of safe-haven assets for some individuals and institutions. It is now common practice for financial institutions to use 0.5% to 1% of their assets to hold bitcoins to hedge the market risk of the entire investment portfolio. Of course, for larger and more conservative financial institutions, such as Mass Mutual and Black Rock, the amount of Bitcoin they hold is a smaller proportion of their investment portfolio. At the other extreme of the market, there is also a phenomenon like MicroStrategy CEO Michael Saylor borrowing money to hold a large amount of Bitcoin. At the other extreme, there are naturally a large number of institutional and individual investors who are not optimistic about Bitcoin, and choose gold or some types of bonds as safe-haven assets. Therefore, in the U.S. market, in terms of choosing Bitcoin as a safe-haven asset, users' choices are still on a very extreme continuum. But judging from the current market development in the United States, more and more funds will flow into Bitcoin.


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