Three Talks about Bitcoin: Bank Positions in Digital Asset Transactions

After the RMB position was withdrawn, the trading price trend of Bitcoin and other encrypted assets was bullish and bearish. One was to look at regulatory risks, and the other was to look at market reactions. The key is the standing volume of the dollar position.

What is a Bank Position in Bitcoin?

Although it is named after "digital currency" or "cryptocurrency", the transactions of encrypted assets such as Bitcoin can be roughly divided into: currency transactions and fiat currency transactions. Most of the transactions in the two parts are reflected in the trading activities under the encrypted asset exchange, and there is also the problem of "coin withdrawal". As an asset trading activity, the purpose is to obtain more "legal currency" in the end. This determines that no one does not care about the fiat currency price of encrypted assets, and no one does not think that the continuous rise of the fiat currency price is the best vision. In the stock market, although the power of capital is huge, people still believe that value investment plays the final decisive role. The stock price cannot be completely separated from the value of the enterprise. Too high or too low stock price means an inevitable correction.

Different from the stock market, there is no so-called value constraint on the transaction of encrypted assets. Even though the production cost of encrypted assets is getting higher and higher, and "mining" has begun to be seriously questioned or even criticized by all parties, the production cost cannot be divided from its value. The super equal sign cannot be used as a basis to support the firmness or even rise of the price of fiat currency.

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If it is necessary to give a "value" signal to encrypted asset transactions, then it is the input amount of the bank's currency position, especially the marginal input amount. That is to say, the amount of funds in bank currencies that directly and indirectly support encrypted asset transactions and their costs and efficiencies in all aspects. Even for currency transactions, the high turnover rate will also bring about an increase in transaction fees, which will eventually be reflected in the occurrence of bank currency positions. The continuous reduction in the currency positions of banks supporting encrypted asset transactions will directly promote the rapid shrinkage of encrypted asset transactions, which will not only narrow price fluctuations, but also easily lead to self-reinforcing trends, shrinking up or down, and then accumulatively triggering extreme market conditions . If the bank position is cut off, let alone whether it is actually feasible, then it will directly lead to the collapse of the transaction. Therefore, the so-called "currency transaction" is only a secondary transaction market, and the fundamental role is the legal currency transaction market.

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If the fiat currency transactions of encrypted assets shrink in a large area, it will directly squeeze out a large number of bank currency positions, break away from the encrypted asset trading system, and "flow back" into the existing circulation system. This is the trillion-dollar gray rhinoceros effect that Bitcoin and other encrypted asset transactions have brought to the entire international economic system. In fact, if only personal holdings do not have such a big impact, the price has fallen sharply, and there is no corresponding bank position to follow up. The chain reaction of asset shrinkage caused by the sharp drop in the transaction price of personal digital assets will not affect the economic system. The balance sheet system brings no shock because it does not enter the balance sheet. However, the impact of financing transactions or leveraged transactions is very significant, and the impact of digital assets held by enterprises is huge. Furthermore, the bank positions released in the encrypted asset trading market will also impact other fields.

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trillions of dollars of economic activity. [2022/8/24 12:45:39]

So what kind of bank currency positions will be squeezed out?

RMB position, or dollar position?

In September 2017, the Chinese monetary authorities withdrew domestic encrypted asset transactions. As a result, bank positions in China were no longer provided for encrypted asset transactions, and RMB positions for encrypted asset transactions such as Bitcoin were cut off. Holders of encrypted assets such as Bitcoin in China choose overseas transactions, but as buyers, they will bypass bank supervision and solve the problem of currency positions for purchasing encrypted assets by themselves. These domestic buyers, who are risking higher and higher regulatory risks, in fact directly or indirectly provide RMB positions, or even crowd out some underground foreign exchange trading channels.

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Overall, the yuan position backing cryptoassets has slumped significantly due to regulatory policies. Then, domestic sellers of encrypted assets will undoubtedly obtain more foreign dollar positions. That is to say, the strong regulatory intervention of the Chinese monetary authorities on encrypted asset transactions has changed the currency types of bank positions in encrypted asset transactions, and even their domestic and overseas flows.

Globally, bank positions for cryptoasset trading are undoubtedly provided by (offshore) dollars. Then, further severely suppressing encrypted asset transactions will undoubtedly lead to a sharp drop in the price of its legal currency, and will inevitably release a large number of dollars internationally. Chinese sellers of encrypted assets are also faced with a new choice of flow direction for the US dollars they have cashed out. It is worth watching whether the selling volume that accompanied the price collapse directly triggered a short-term surge in the supply of dollar positions. If there is no follow-up of a large number of short-term U.S. dollar positions, the price drop will not lead to large-scale transactions, but only a reduction in transaction volume, and the price of encrypted assets will soon find a support point and achieve limited turnover.

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After the RMB position is withdrawn, the trading price trend of Bitcoin and other encrypted assets is bullish or bearish. First, it depends on regulatory risks. Second, it depends on the market reaction. The key depends on the standing amount of the US dollar position, or the trend of its marginal position.

Marginal Position Problem

Since last autumn, the U.S. financial authorities have gradually and significantly adjusted their attitudes and positions towards encrypted assets, from the banking system accepting the custody of encrypted assets, to a series of regulatory relaxation and issuance, and to some officials becoming more tolerant and Active voices, etc., can be seen as the United States seems to be more willing to provide more dollar positions for crypto asset transactions. Subsequently, there was a large wave of support and support for Bitcoin by business people. As a result, the marginal position of encrypted assets has surged in 2020, and the dollar price of encrypted asset transactions led by Bitcoin continues to rise. The wealth effect caused by encrypted assets such as Bitcoin will be more prominently reflected in the wealth effect of excess US dollars in 2021.

The increase in the marginal position of bank currency in encrypted asset transactions mainly comes from the US dollar, which is a source of retail investors on Wall Street. Cheap and excess US dollars need to find more, faster, and more imaginative release outlets. It is not difficult to find that, on the one hand, the relevant authorities have invariably controlled housing credit, tightened pockets of funds in the property market, and avoided the influx of excess funds; on the other hand, the United States has opened up or even stimulated the trading of encrypted assets. It is with this in mind that we ask the question, how much excess dollars can Bitcoin absorb?

We have noticed that NFT brings more tradable forms of digital assets, and the practice of Defi and other bypassing the asset transaction link to obtain bank currency positions, and even the severe criticism or pursuit of individual "encrypted assets", these are undoubtedly It is conducive to consolidating the encrypted asset transaction structure system with Bitcoin as the "core". They either bring more bank positions, or provide more diverse options for bank positions, or strengthen the position of core encrypted assets such as Bitcoin structurally, reducing the inherent market competition of the encrypted asset system. instability. There is no doubt that a larger dollar position funnel is forming to stabilize and increase the marginal position increment of the currency traded in crypto assets such as Bitcoin.

However, even if the Chinese authorities have not strengthened their supervision and intensity of encrypted asset transactions, it is not difficult to find that global technological innovation companies, including large American companies, are reducing the budget and personnel of the blockchain sector, or even directly cutting off Related departments. Encrypted asset trading is losing its dazzling aura of technological innovation. If we do not try to stabilize and increase the marginal currency position required for trading, then the rapid decline in its trading price will become a high probability event. In other words, bank positions will not increase but decrease, and the overall market turmoil and downturn are inevitable. Encrypted assets such as Bitcoin have many holders or fans in China, and there are also a large number of "potential" traders. The regulatory warning of the relevant authorities is necessary and timely, and it has also objectively stabilized the encrypted asset trading market. Avoid overheating, too fast, and excessive fluctuations, which will impact a series of capital chains or joints of the domestic and international financial systems.

Exactly how much standing amount of US dollars is driving up the encrypted asset market with a market value of 2000-3000 billion US dollars? How much marginal position can this standing amount of dollar position leverage? How does the roughly $100 billion in stablecoin assets relate to crypto asset trading? After several rounds of sharp price rises and falls, individual investors will generally be hesitant, and more individual holders will also choose the right time to leave the market. So, what will crypto assets rely on to continue to maintain the bullish situation? In addition to the strictly regulated real estate market, it is even more difficult to find the next trading product whose price continues to rise in the global market. The situation that Bitcoin and other encrypted assets are thriving may have become a thing of the past... { }

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