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Bloomberg: Will the sharp rise and fall of Bitcoin "infect" other financial assets?



Despite Bitcoin’s sharp drop in the last week, its price is still up more than 250% over the past 12 months.

Volatility issues in the cryptocurrency market are likely to persist, and with the price of bitcoin plummeting last week, more and more people are starting to wonder whether cryptocurrencies have a "contagious" problem, that is to say - this instability in cryptocurrencies and whether price volatility can cause trouble for other financial assets such as stocks and bonds - the answer to this "contagion" question is no if considered narrowly, but in the broader market environment, especially The situation can become more complex when considering aspects such as assets, ownership and market function.

Below, let’s take a look at the four cryptocurrency “contagion” issues that investors need to consider.

Yes, cryptocurrency volatility is here to stay, and it’s going to be more tense and multi-dimensional. One of the notable developments in the cryptocurrency (and bitcoin in particular) industry this year has been competition between the private and public spheres, and this phenomenon is likely to intensify in the coming months.

Bloomberg: Twitter has frozen some of its employees' access to content-zce moderation tools: On November 1, Twitter has frozen some of its employees' access to content-zce moderation and other policy enforcement tools, resulting in the majority of the company's trust and safety organization working Neither has been able to process or penalize accounts for misleading information, offensive posts and hate speech rules, and Twitter has declined to comment on its restrictions on the use of its content-zce moderation tools.

Bloomberg said that although Elon Musk had previously stated that he would not change Twitter’s content-zce review policy, according to people familiar with the matter, he has raised questions about some policies, but it is unclear whether Elon Musk wants to revise the relevant policies or completely cancel the restrictions. [2022/11/1 12:06:32]

However, just recently, the private sector seems to have begun to accelerate the self-reinforcing process, and many companies have begun to explore Bitcoin as a payment method and value store. The most obvious "push" occurred in February this year, when Elon Musk announced Tesla has already invested some of its funds in bitcoin, and has also announced that it will be added as a payment option for vehicle purchases. This kind of move can easily trigger other companies to follow suit, which in turn pushes up Bitcoin and attracts more investors. At the same time, non-traditional cryptocurrency trading platform providers have also begun to accelerate their development. For example, Coinbase has successfully landed on the Nasdaq exchange, and more traditional brokerage service providers hope to provide investment tools for interested investors to participate in the encryption market.

Bloomberg: Binance will take necessary measures against Russian users who are included in the government’s sanctions list: According to news on February 28, according to Bloomberg News, in response to Western countries imposing sanctions on Russia, Binance said, “We have established a dedicated global compliance The task force, which includes world-renowned sanctions experts, is taking the necessary steps to ensure we take action against those sanctioned while minimizing the impact on innocent users."

As previously reported, Changpeng Zhao tweeted that Binance is donating $10 million to help Ukraine overcome the humanitarian crisis. At the same time, Binance Charity, a charity under Binance, launched the first cryptocurrency crowdfunding for the Ukraine Emergency Relief Fund. In addition, Changpeng Zhao said that our focus is to provide support on the ground, we only care about the people. (Forkast) [2022/2/28 10:20:09]

Elon Musk and Tesla’s seemingly unstoppable “encryption zeal” faltered just last week, as regulators from the public sphere began striking back.

Former Bloomberg reporter: SEC sues Coinbase to cool down the entire digital asset industry: On September 8, former Bloomberg reporter Camila Russo tweeted that the U.S. Securities and Exchange Commission (SEC) crackdown on Coinbase, the largest cryptocurrency company in the United States, is a well-thought-out A move aimed at cooling the industry as a whole. According to previous news, Coinbase plans to issue "loan" products and was threatened by the SEC. [2021/9/8 23:10:36]

Many regulators and central banks remain concerned that cryptocurrencies pose risks to national security and economic and financial stability. For regulators, their long-standing concerns about cryptocurrencies include: illicit payments, investor protection, weakening the effectiveness of monetary policy etc., and more importantly, the widespread issuance and use of competing currencies may affect national fiat currencies.

Now, some major countries with important demonstration roles in the world, such as China and the United Kingdom, are seriously studying the feasibility of central bank digital currency issuance. As long as there is more progress in central bank digital currency, decentralized currencies such as Bitcoin ) to exert greater regulatory pressure so that it can make room for its own digital currency issuance.

Voice | Bloomberg columnist: Bitcoin may rise to $400,000 due to fundamentals: Bloomberg columnist Aaron Brown wrote that the next sustained rebound in Bitcoin may be very large, because Bitcoin will be affected by fundamentals and Influenced by global financial events, not driven by FOMO. According to Brown, if future price action mirrors the previous bull run, Bitcoin could rise to $60,000 to $400,000 before falling sharply. Brown believes that the surge in Bitcoin in 2013 and 2017 was mainly driven by retail investors, while 2019 is different because the current cryptocurrency market value of $260 billion is higher than that of 2013 ($1 billion) and 2015 ($3 billion). ) is much larger. Additionally, there are many more cryptocurrency investors today, and over $30 billion in institutional and investment capital was spent building new platforms in 2018. Regulatory clarity is also being gained, with major players such as Facebook, Goldman Sachs, JPMorgan and Fidelity investing in the industry, and Bitcoin’s price action may become more pronounced in 2019. However, Brown cautions that this does not negate the possibility of bubbles and crashes, but as the industry matures, the market may be able to provide "predictable" returns, with the occasional 20% correction rather than the extreme 85%, This is usually a correction at the end of a Bitcoin bull cycle. [2019/6/15]

Overall, there is not yet a strong “formal link” between cryptocurrencies and more traditional asset classes. At least for now, they tend to live in their own ecosystems.

By their fundamental properties, cryptocurrencies are neither a substitute for stocks, bonds, and commodities, nor other financial assets. While proponents have been emphasizing the role of “cryptocurrency” as a decentralized global currency and its ability to proliferate rapidly in the payment and savings ecosystem, two necessary conditions must be present for this to happen:

1. Mature system;

2. Relatively stable price.

To achieve the above two points, it usually takes several years to complete. Not only that, but cryptocurrencies will have to find solutions to deal with high energy consumption.

It is undeniable that there are indeed some informal "contagion channels" between cryptocurrencies and traditional financial assets, especially after adding leveraged trading, these informal "contagion channels" have begun to become more and more.

Because of the poor yields on traditional bonds and their asymmetric and less favorable price outlook, some investors have come to see cryptocurrencies as a good way to diversify their assets, so there has been a lot of stock-like crypto investment exposure, and some Institutions are starting to choose to invest in crypto platforms as part of their portfolio positioning.

As cross “holdings” expand in more investor portfolios, so does the risk of “contagion” in cryptocurrencies, especially when trading with leverage, and the operational infrastructure supporting cryptocurrency trading has to withstand A certain amount of pressure - with what happened last week, many people must have seen some problems. It’s important to note that historically there have been many examples of “contagion” issues, such as the three main reasons why many investors sell assets:

1. Protect your overall investment portfolio;

2. Fundraising;

3, both.

However, in many cases, investors are often unable to sell the products they want to sell, and the final asset sold is far from the expected asset, and its nature is also very different, which will lead to a higher financial spillover risk.

If cryptocurrencies operate in a closed loop, the risk may not be too great, but if other related events occur in the market, the situation may go bad.

At this stage, institutions are not fully holding Bitcoin, which means that there is no systemic risk at present. It also appears that many banks have not (or hardly) added cryptocurrencies to their balance sheet exposure. From this perspective, it is also good news that the volatility of the cryptocurrency market will not bring direct spillover effects to other industries (especially the financial industry).

On the other hand, even though the price of Bitcoin fell from $63,000 to below $40,000 in the past five weeks, if you look at it over the past 12 months, the price of Bitcoin is still up by more than 250%. Not only that, the Federal Reserve is providing sufficient and predictable liquidity, so some industry analysts believe that Bitcoin still has "rebound potential". In this case, the risk of "contagion" in cryptocurrencies may further expand.

Therefore, market participants and financial regulatory authorities must pay close attention to and monitor the potential risks of financial accidents, especially now that people are driving faster and faster on the financial risk highway.


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