Is bitcoin, known as “digital gold” in the circle, a safe haven asset? Can bitcoin hedge the risks brought by the global financial crisis? This is a topic that many people are concerned about recently. Carbon chain value has the honor to invite Zheng Di, CEO of dots institutional investor community, Ren Heyi, analyst of Guosheng securities blockchain Research Institute, and Qin yuan, macro fixed income analyst of CSC, to share and answer these questions.
Q1: since the stock sell-off this week, the correlation between bitcoin and the S & P 500 index has been rising, while the correlation with the price of gold has been declining. If we continue to call bitcoin “digital gold”, is it appropriate?
Zheng Di: bitcoin is still a new thing compared with gold and other major categories of assets. Up to now, it is only 10 years old. But gold has existed for thousands of years. If we look at the development history of bitcoin, we will find that its design concept is actually high imitation gold, but it integrates some new technical concepts later called “blockchain”, which ensures that it is difficult for anyone to forge bitcoin. But it’s not impossible to forge forever. It’s hard to say. It depends on the development of new technologies and the response of bitcoin. In fact, gold used to be hard to forge, but now with the emergence of tungsten doped iridium, there are more and more fake gold. Some conspiracy theorists even wonder whether a considerable part of the US reserves are of this kind. Whether in the Hong Kong market or the mainland market, we have seen the news of this kind of fake gold.
So far, in terms of anti-counterfeiting, I personally think bitcoin is actually better than gold. To prove that gold is not fake, it also needs very complex technical equipment and professionals. It is difficult for ordinary people to distinguish the authenticity.
However, in terms of asset price changes, we can see that the volatility of bitcoin is still relatively large. Of course, if we divide it into two time periods before and after 2013-2014, we will find that the volatility of bitcoin has been significantly narrowed. Even so, it is still more volatile compared with gold. For gold, a daily fluctuation of more than 2% is a big fluctuation, which may be because the gold market is now very huge. The total market value of spot gold market alone has reached US $8 trillion. If paper gold and other derivatives are taken into account, it may be as high as US $30-40 trillion (in fact, this figure is not accurate). But in fact, the total market value of bitcoin spot market is less than $180 billion. If considering the loss of 3-4 million bitcoins, this market value is smaller. Even with the derivatives market, it will not be large, so a smaller asset class may lead to greater volatility.
From the perspective of hedging attribute, bitcoin is still insufficient in terms of hedging attribute compared with gold. However, risk avoidance can not be generalized. We can not simply think that what must be risk avoidance and what is not risk avoidance. In extreme cases, everything can be sold. There may be some special places, such as the carry currency borrowed for carry trading, such as the euro and yen. When many assets are sold in a real crisis, they will rise sharply. Therefore, from the perspective of pure risk aversion, I personally think things like yen and US Treasury bonds may be better than gold.
Why do you say that? Because gold fell last Friday, we also saw it. My personal view is that it is not a manifestation of deflation expectations. I think there are some problems in market liquidity. It is likely that some investors in the United States have bought too many index ETFs. Then they are selling ETFs, and these ETFs may be too late to clear the market, so they will have to borrow some gold to sell in the market. This is possible, so with the easing of liquidity, gold should return to its strong space.
Therefore, under normal circumstances, gold does have a better risk aversion attribute. However, we can also see that when liquidity is relatively exhausted, gold can not play a real risk aversion role. Therefore, the property of risk avoidance is something similar to mysterious code. We can’t be too superstitious, but we should analyze it in detail. In addition, according to official data, the world’s central banks have 33000 tons of gold in their hands, which can not generate interest. Therefore, they tend to rent out the gold and lend it to these dealers in exchange for some income. The most typical is November 2018. We can see that at that time, the gold leasing reached an all-time high of 2.5% annualized, which covers a short-term decline in the price of gold.
It can be seen from this picture that the white line is the gold rental interest rate and the red line is the gold price. So in November 2008, some people asked why the price of gold fell first? Because most people in the market are faced with marketing calls, they are forced to borrow gold. The leasing bidding is very high, and then they throw it out. Now, when the gold lease interest rate was relatively peaceful in 13 and 14 years, it was basically 0.1 to 0.2. Now it’s about 0.5 to 0.6. Therefore, as a means of liquidity realization, gold erodes and weakens the hedging attribute.
The above-mentioned safe haven attribute of gold is not absolute, but compared with the safe haven attribute of gold, we can see what degree it has reached. After all, bitcoin is a new thing, and there are some giants in it, so it may also face a short-term sell-off. In particular, some concentrated selling can easily bring down the price of bitcoin. We still remember that when bitcoin rose from more than 3000 to nearly 8000 in the second quarter of last year, a large hanging order of 5000 or 6000 bitcoins suddenly appeared in bitstamp exchange, which immediately pulled the price of bitcoin to about $6100. At that time, the mainstream exchanges were basically between 6900 and 7000. This is a big problem of bitcoin at present, and the market depth is far from enough.
Due to the problems of market depth and whale players, bitcoin prices are easy to fluctuate as long as there are large sales and large purchases. For example, for the mysterious bill payment on April 2, 19, we should all remember that $100 million swept through the three spot exchanges referred to by the futures exchange bitmex, which suddenly led to a rise of 20% on the same day. The lack of depth led to the sharp rise and fall of bitcoin. Although the amplitude has been narrowed a lot, it is still relatively unstable compared with gold. I personally believe that bitcoin is not as stable as gold in terms of volatility and risk aversion, so it is understandable that gold has such a large market value.
But I prefer to see bitcoin as walking on the road of digital gold. At present, bitcoin is the furthest and most promising one on the road of digital gold. Of course, no one knows whether it will become real digital gold in the future, but there is hope.
From other aspects, such as carrying convenience and capital transfer, and non counterfeiting, bitcoin is superior to gold in these aspects, so I think it does have some conditions to become digital gold. However, its history is still relatively short, only ten years. Coupled with the depth of the market, there are relatively few players involved, and the real big money has not come in yet. Even the gray scale of the so-called “institutional investors” we see now is actually only $23 billion.
How bitcoin may develop depends on how high the society recognizes it. Here, I would like to cite the survey conducted by Jiaxin financial in the third quarter of last year: for the millennials who opened pension accounts in Jiaxin financial, the configuration proportion of bitcoin trust gray-scale GBTC products has reached 1.84%, and bitcoin has entered the ranks of the top ten positions in millennial pension accounts.
Why is the allocation of millennial pensions important? They are the children of the post-50 baby boom generation in the United States. As we all know, the richest group in the United States is the post-50 baby boomers, who have mastered the mainstream voice and wealth of American society. I don’t have specific figures on their wealth transfer, but according to relevant reports, it may be the largest inheritance transfer in human history, with a total amount of US $62 trillion. Therefore, their children, millennials, will be the most important group to influence the changes in asset prices. Therefore, they configured the gray-scale GBTC to the top ten heavy warehouse industries, accounting for 1.84%, which is undoubtedly a trend worthy of attention.
So from the current situation, I personally prefer to define bitcoin as not yet becoming digital gold, but it is on the road to becoming digital gold, and there is still a long way to go. To become digital gold, we need more trust in it, especially in the mainstream, which takes time. I believe very much that the development of compliance is a very important thing for minority assets such as bitcoin, because only in this way can mainstream funds continue to come in and broaden the depth of the market. On the other hand, bitcoin is now more liquidity driven due to a slight lack of market depth. Therefore, in essence, it can be regarded as a liquid asset. In other words, it is a risk asset highly related to risk and liquidity, rather than a hedge asset. I pay more attention to the impact of changes in global expectations.
In 2018, gonlac, the king of new bonds, observed that bitcoin is highly correlated with the NASDAQ index, which is understandable. Because the NASDAQ index is also liquidity driven, it is normal that it has a certain correlation with bitcoin.
However, correlation is not causality, nor does it necessarily have some inevitable logical connection, but it may show this characteristic in a certain period of time. However, we can not regard correlation as causality, but we should specifically analyze the reasons for the correlation in each period of time. Nor can we cling to stereotypes and regard relevance as always relevant. In other words, we think it is a risky asset now, and it will never become a safe haven asset in the future.
Ren Heyi: is it appropriate to continue to call bitcoin digital gold? I don’t think bitcoin is digital gold at present. I can only say that there is such an expectation within the circle. Because I believe that many people in the world’s 7 billion people do not know this thing, but basically everyone knows gold – that is, although bitcoin has many properties similar to gold, it is far from the consensus of gold. To be precise, “bitcoin is digital gold” is just the vision of our circle or some people, hoping to turn bitcoin into digital gold – interestingly, the Federal Reserve noted that Powell also said so in a congressional reply.
We all know that according to Fisher’s interest theory, the value of assets is the discount of future expectations. If digital gold is the long-term vision of bitcoin, the current price of bitcoin will reflect people’s expectations for this vision – obviously, it has not reached the level of digital gold yet.
Qin yuan: I know bitcoin and digital gold more from the attribute of money. I think bitcoin is actually a kind of digital gold.
The most basic value of gold is value storage. First, it can travel through time. There will be no change between 1000 years ago and 1000 years later; Second, it will not deteriorate in the United States or in the East and West; Third, it can cross culture to a certain extent. Whether it believes in Christianity or Islam, its understanding and views on gold are basically the same. Bitcoin is also basically in line with such characteristics, and even more pure in some aspects.
Gold, as we all know, is no longer a currency. There are several reasons for the withdrawal of gold from the money market: the strong modern national governance system and the strong promotion of legal currency; Gold itself will bring deflation on the macro level; On the micro level, there may be counterfeiting, and ordinary people have some problems in their recognition of physical gold. Therefore, if you really use physical gold for monetary transactions, the whole transaction cost is still relatively expensive. If bitcoin can be popularized in this regard, it may be better than the value storage attribute of gold to a great extent.
However, as a traditional value store, gold may be a very good kind of asset across culture, region and time. Therefore, I think gold and bitcoin are basically value storage in my eyes, so I have no doubt about calling bitcoin digital gold from the perspective of value storage. This is my share.
Q2: what caused the sharp decline of bitcoin and US stocks? With the global stock market plummeting, the signs of central banks working together to rescue the market are becoming more and more obvious. What role will this play in the next bitcoin and US stock market?
Zheng Di: I still hope bitcoin and US stocks can be viewed separately. Of course, there are some connections. If you look at the price trend, you will find that the observation of bitcoin liquidity seems to be ahead of the market. Bitcoin has taken the lead in responding before everyone realizes that liquidity is not as good as they think. However, strictly speaking, these two markets are still divided.
Then why did bitcoin fall? In fact, it is very simple. This wave has risen from $7000 to more than $10000, with an increase of at least 30%. From the beginning of the year to late February, bitcoin rose 34%, which is already the best performing asset in the world. So it’s normal to say that it will fall. After all, if it rises, it may fall.
I think it’s easy to answer if we want to discuss why it fell from the framework of liquidity. Because of the epidemic, at the beginning of this year, everyone was at home, the money was in their own hands, and they didn’t spend it. Therefore, there was more money to invest in some virtual assets, including the stock market and digital currency, so a “epidemic cow” came. However, both the Federal Reserve and the Central Bank of China were relatively restrained before this round of decline. Liquidity is not as good as you think. A typical sign is that the size of the Fed’s Mini qe4 has shrunk before this round of decline. In fact, the Central Bank of China mainly relies on fiscal policy rather than expanding monetary policy.
Therefore, after the Bulls raise the currency price to $10000, we should pay attention to one problem: the liquidity of China and the United States is not as good as the market expected. That’s embarrassing. Where’s the follow-up? This is the first question. Second question: after the pull, it is only one month from the end of February to the announcement date of Mentougou on March 31. Considering the potential huge selling pressure, can this pull continue?
Obviously, the closer it is to Mentougou day, the more limited the increase is. I see the adjustment and think it is going to fall. So the decline is easy to understand.
The decline in US stocks is actually another reason. One is the spread of the epidemic in the United States, and the other is the market’s fear that Sanders will successfully run for president of the United States. The Sanders cup is called “socialism” in the United States. Once he is elected, it will be very unfavorable to the capital market.
Overall, I think bitcoin and the stock market are still two separate asset classes, which are still different and have their own logic. But there is one thing in common: liquidity was not as good as the market expected before this wave of decline. The main central banks are still relatively restrained, and the price rise is a little ahead of schedule, so now we have to come back and adjust to the rhythm of the central bank. Since this wave of central bank will release water again, it is difficult to say the space for decline. This is my view.
Ren Heyi: in fact, the shock of US stocks is very normal. At present, the total market value of US stocks has more than doubled the US GDP. In the trump era, the US dollar flowed back a lot, because there were not many industrial chains to invest, and money went to the stock market when there was no place to go. Shocks in the stock market at this stage are very likely. With the gradual spread of the epidemic in the United States and around the world, the panic in the market also gradually broke out, which is also a very important reason.
Speaking of the decline of bitcoin, I certainly hope this is a squat before halving the market. However, from my observation, the capacity and depth of the bitcoin market are not enough – because in fact, few bitcoins are actually traded on the exchange, and miners are still very willing to hoard money. So its rise and fall are really difficult to predict.
The other is the stock market and bitcoin market. In terms of the correlation between capital and capital, I think it is very, very low. As I said earlier, digital gold is just a beautiful expected vision of bitcoin. In fact, the current decline of bitcoin and the decline of US stocks are not much related.
Trump has always hoped that the Federal Reserve can release liquidity to rescue the market. However, the extent of the rescue depends on many levels. Now that the epidemic is gradually spreading around the world, the US capital market may also need time to digest these expectations, so we can only look at them step by step.
As for the impact of the release of liquidity bitcoin by global central banks, I think it is basically negligible. Because of the central bank’s rescue money, there is no evidence that how much will flow to the bitcoin market. After all, the two have little financial relevance.
Qin yuan: bitcoin can be called digital gold, but it has only developed for about 10 years. The whole market of bitcoin is still very small and separated from many major categories of assets. It is not particularly suitable to analyze bitcoin with many frameworks for analyzing gold. As the two teachers said earlier, there are indeed great problems in the control panel of bitcoin, which is largely a trend of its own.
Recently, the decline of bitcoin coincided with the decline of US stocks. This may be a coincidence to some extent, or the linkage between bitcoin and large categories of assets is gradually strengthened, but from my point of view, it is not related to the degree that there is a sustainable logic to analyze the price trend of bitcoin with the logic of large categories of asset allocation or the logic of large categories of asset analysis.
Back to the decline of US stocks, the market has recognized that one of the main reasons for the decline of US stocks is the epidemic. The second is the recent sudden rise of Sanders. The outbreak of the epidemic may weaken Trump’s probability of re-election to a certain extent. Sanders’s own socialist tendency is not particularly friendly to US stocks, which led to a significant decline in US stocks. When U.S. stocks fall sharply, you will instinctively think that the Federal Reserve will come out to help. Since 2018 and 19 years, the market has basically been this routine. As long as the market is tense, the Federal Reserve is bound to release water.
From the perspective of value storage, the release of water is certainly better than the special currency; However, due to the high degree of control, bitcoin is actually more about its own trend, so it is difficult to predict.
Q3: during the Sino US trade war last year and the assassination of Sulaimani at the beginning of this year, the price of bitcoin increased significantly. However, the global stock market plummeted, and bitcoin actually experienced the same decline. Is bitcoin still a safe haven asset? What should we think of bitcoin?
Zheng Di: now bitcoin is still a relatively small market. We sometimes associate it with safe haven assets, but it is not certain whether it rises for that reason. For example, when Sulaimani was assassinated, someone just bought it, and it may not be for this reason. After buying it, it rose, and everyone thought it might be a bit of a risk aversion. But correlation is not causality, which is far fetched after all.
From another point of view, I think bitcoin is more risky assets at present. It is still liquidity driven or liquidity expectation driven. Many bitcoin investors and speculators in China may not particularly understand or agree with this logic, but we can see that GBTC has nearly $3 billion. Its customers are mainly hedge funds and some high net worth people. These people may recognize these logic. Their entry and exit of US dollars may have some impact on liquidity.
Ren Heyi: let me first throw out my core conclusion: at present, the correlation coefficient between bitcoin and gold price is not enough, and there is no obvious correlation between the two.
We examine the correlation between the two assets. Instead of putting the price curve together to compare the trend outline, it does not conform to the statistical law, but we should look at the correlation coefficient between the two. We previously made a data to investigate the price correlation coefficient between bitcoin and gold in the past seven years. If the coefficient is close to 1, it is a positive correlation and – 1 is a negative correlation. From the data from 13 years to now, the correlation coefficient is expressed as no obvious correlation. Therefore, although bitcoin and gold have too many similar attributes, its price has no obvious correlation. There are few correlation coefficients exceeding 0.5, and there is no complete law, Basically fluctuate around zero. I think this is the scientific statistical method to compare the correlation between the two assets.
However, when the chairman of the Federal Reserve heard in Congress last year, he inadvertently said: the congressman asked why Libra did not anchor bitcoin. He said that bitcoin was similar to digital gold. If an official accidentally said such words from his mouth, he may have formed such an understanding. Because their research on bitcoin is closely tracked, digital gold is an expectation of bitcoin’s future – part of it is an expectation. But there is no obvious correlation between bitcoin and gold price, but I think this is the investment space of bitcoin. If you agree that bitcoin will become digital gold, bitcoin is not related to gold now, and there is a lot of room for its future. Until there is a clear correlation between the price of bitcoin and the price of gold, it shows that the price trend of bitcoin is affected by gold – or the investment logic of the two tends to be similar.
The correlation coefficient between the price of bitcoin and the price of gold is relatively close. First, when there is an obvious correlation, the investment logic of bitcoin is relatively close to that of gold, and bitcoin can be viewed with safe haven assets or other logic. Obviously, this is not the case at present, so I think if you recognize that bitcoin is the digital gold of the future, with this good expectation, there is still a lot of room for bitcoin, and I am personally optimistic.
Qin yuan: the understanding of bitcoin can be summarized by several keywords. In addition to some characteristics I mentioned earlier, bitcoin is still an emerging market and niche market. Then from the perspective of the public, in fact, it is a market with imperfect rules. In addition, it is particularly speculative, while the relative volatility of gold is much smaller.
Therefore, from the perspective of microstructure, bitcoin and gold have great isomorphism or similarity in terms of value storage, but from the perspective of market performance, they are basically two completely different markets.
In addition, I would like to talk about my views on value storage. In my mind, bitcoin and gold are value stores, but value stores are not a state where you have no me or you have no me. Different value stores can coexist.
There are 7 billion people in the world. Some people may have high acceptance of emerging technologies, such as a series of decentralized digital passwords, so they can easily accept bitcoin. Bitcoin can easily become a totem in their mind and a store of value. For many ordinary people, they may feel that gold, especially physical gold, can be seen and touched, and after thousands of years of history, they will choose gold as a value store. Therefore, bitcoin and gold may each have their own group of fans. However, judging from the current market, gold is a relatively stable market. If gold may fall by more than 3% or 4% a day, we will feel that this fluctuation has been great. Then, like bitcoin, we are used to falling by more than 10% a day.
Q4: Ladies and gentlemen, what is the greatest value of bitcoin? What do you think of bitcoin’s next halving?
Zheng Di: young people around the world like to configure bitcoin. In addition to these new gadgets, another important reason is that it is not particularly relevant to other assets. Sometimes it may have a high correlation with the NASDAQ index, and sometimes it may have a high correlation with gold. But in the long run, it has a relatively low correlation with any kind of asset, which just constitutes the necessity of allocating it, even if it is a small proportion.
In addition, only from the current trend, it is a tool for value storage, but it is relatively volatile. However, if the entry is relatively low, there is still a relatively safe margin, and there is more room for rise than gold. For those young people who are willing to allocate more than $800 billion of gold, after all, there is only a certain amount of room for them to store more than $100 billion of gold. After all, it is worth it. Although it is now a minority asset, it may become a mass asset in the long run.
To tell you the truth, I haven’t had a special cold when bitcoin is halved. I don’t think it must be halving that leads to its rise. Most of the time, the rise is related to the monetary policy of that year. The improvement of supply may play a little role, but I think the most absolute thing of bitcoin is not supply, but demand. So I will pay more attention to the expansion or contraction of global liquidity.
In other words, if everyone believes in halving, but if the global monetary policy shrinks this year, it may be miserable, just like in 18 years.
Ren Heyi: I just said the future value of bitcoin. Digital gold may be the first more realistic application of bitcoin and a more realistic positioning. However, the problem now is that the market capacity and depth of bitcoin are not enough. The funds involved in bitcoin are not very mainstream. Of course, they are also gradually improved. For example, futures and options, including ETF, may also be pushed out. These traditional capital market tools, as a channel, enable traditional funds to enter the market legally and in compliance. These are good signs.
As an entry point, bitcoin introduces traditional funds into the blockchain field. I think the channels will be wider and wider in the future. From this perspective, bitcoin, as a leading variety in the blockchain, must still have a lot of space.
As for halving, because there has been a bull market in the past two halving, people naturally think that halving should have a bull market. In fact, this is not the case logically. Halving should reduce the income of miners. If the price does not double, the miners will certainly lose, but it does not mean that the market will double the price in order to keep the miners from losing.
In the past, the funds entering the market were relatively marginalized, so it is possible to speculate the bull market with the expectation of halving, but whether this halving can bring a bull market is certainly unpredictable. We must not simply think that there must be a bull market in halving, but we should look at it step by step in line with the situation. Moreover, the price of 10000 has been impacted three times, which is enough to show that the price of 10000 is a great pressure.
Qin yuan: let me talk about my views on this issue. As for the value of bitcoin, I have repeatedly stressed that in my opinion, it is a kind of value storage and the most fundamental value. With the expansion of blockchain applications, many blockchain applications may be combined with bitcoin. The increase of application scenarios will also increase the recognition of bitcoin value storage to a certain extent. Another problem we have repeatedly mentioned before is that with the improvement of the acceptance of the public bitcoin, the audience of its value storage will increase, which may be a very big attraction in the future.
On the issue of halving, if we don’t consider other factors, just from the perspective of halving, with a simple economic analysis, the supply is reduced, which will certainly boost the price to a certain extent. Another is that after halving, it also means that the mining cost increases. In terms of commodity analysis logic, it is also reasonable for the cost to rise and the price to rise.
Bitcoin is very similar to gold in this regard. Simple supply and demand is not the core factor in analyzing its price. The core factor of price is largely the performance of speculation in its own market, and speculation is to find the theme to a great extent. Well, the previous two halvions have brought a bull market in bitcoin. Now we have found such a hype theme. But as for whether it can be hyped this time, we still need to continue to observe.
Q5: facing the unprecedented market situation this year, please share your investment suggestions.
Zheng Di: very simple answer. I think bitcoin still needs to grasp the opportunity to be long after adjustment. Of course, we will adjust the evaluation according to real-time changes. My consistent view is that if we eliminate Mentougou and the impact of some whale selling on the currency price, bitcoin is the best known asset reflecting the liquidity view. This aspect may be better than gold, and its elasticity is very large. Because bitcoin is a minority asset, it is extremely sensitive to liquidity. If we think that when liquidity gets better, all countries have to spend money, the probability will rise, but now it may be suppressed by Mentougou and some giant whales.
This year’s economic situation is poor, and countries will spread money sooner or later, so this bitcoin is good. But we should pay attention to some disturbing factors on the supply side.
Ren Heyi: maintain liquidity. This is personal advice.
Qin yuan: in the short term, I relatively agree with President Zheng. At present, the combination of hard core technology and monetary drainage will still be the two main lines of the market, and both of them can be related to bitcoin. However, in the medium and long term, we need to pay close attention to the problems of financial supervision and social governance environment, the attitude of technology Internet giants and blockchain.
Responsible editor; zl