On Tuesday, the reversal of the overnight "Trump trade" spread to the Bitcoin market. The price of Bitcoin once reached around US$99,000 and then quickly fell back below US$93,000, with the maximum drop exceeding 6%. This comes as markets are shaken by rumors that Israel and Lebanon are expected to reach a ceasefire agreement. Not only Bitcoin, but gold and crude oil prices also fell sharply.

Bitcoin’s growth performance in the past month (40%+) has amplified the risk sensitivity of its investors. This 40% gain is a start. , or is it the end? The author believes that this is the short-term impact of a single point event. External macro conditions remain unchanged in the long term, and liquidity may not allow this cycle to end abruptly.

Liquidity is the "cause" of risky assets

From a macro perspective, on September 18, 2024, the Federal Reserve cut interest rates by 50 basis points for the first time since 2020 to 4.75 %-5.00%, ending the 525 basis point interest rate hike cycle. As Bobby Axelrod in "Billions" said, "Power is not everything, but without power you are nothing." The impact of the Federal Reserve on Bitcoin has caused Bitcoin to find a balance between the proliferation of liquidity and the need to hedge against inflation. Bitcoin serves as a tool that both expands U.S. stocks and hedges against inflation. Interest rate cuts release liquidity and inject wider space into risky assets. Potential economic fluctuations and uncertainties make cryptoassets such as Bitcoin an option to “hedge real-world risks.”

Image source: Christopher T. Saunders, SHOWTIME

As Trump returns to power and forms a new team to ensure "America First" by implementing a series of fiscal stimulus, the increase in spending will further promote market liquidity. Not only that, Trump proposed a plan during the campaign to establish a Bitcoin reserve, using the cryptocurrency to undercut U.S. dollar competitors. There is also a push for a U.S.-led international cryptocurrency regulatory framework as Trump and his team consider appointing crypto-friendly regulatory officials.

However, there are also voices that question the interest rate cut and shout that "a financial crisis is coming." According to MacroMicro's U.S. Recession Index (Likelihood), the probability of a U.S. recession in November 2024 is 24.9%. "Searching for a sword" Compared with the last economic recession caused by the financial crisis, if this round is a recession cycle, the recession mayIt may reach its peak within 6 months. In the game of liquidity and hedging inflation, Bitcoin’s economic adjustment in this round reflects more of its sensitivity to changes in liquidity.

Image source: MacroMicro

Organization: The 5% critical threshold has been exceeded< p style="text-align: left;">Under such macroeconomic conditions, Bitcoin has also been favored by institutional liquidity. Since the opening of the Bitcoin spot ETF channel in January 2024, according to statistics from the Ouke Cloud Chain Research Institute on November 21, the global Bitcoin spot ETF has accounted for 5.63% of the entire supply of Bitcoin. A 5% shareholding ratio is usually a key threshold in the financial industry. For example, in the U.S. Securities and Exchange Commission (SEC) regulations, shareholders holding more than 5% of the shares are required to report to the SEC.

Bitcoin holding distribution｜Image source: OKG Research, bitcointreasuries, public news< /p>

In addition to Bitcoin spot ETFs, listed companies have also taken action in such an environment. According to incomplete statistics from the Ouke Cloud Chain Research Institute, since November 6, 17 listed companies in the United States and Japan have announced that they hold or have approved Bitcoin as a combat readiness asset. Among them, the most prominent MicroStrategy purchased 55,500 Bitcoins between November 18 and 24 for $5.4 billion. Currently, only 0.01% of listed companies in the world hold Bitcoin, which means that this is just the tip of the iceberg of the purchasing power of large institutions, and the market is still in the "elite experimental stage."

Ouke Cloud Chain Research Institute has conservatively calculated that the statistical funds entering Bitcoin in the next year will be approximately US$2.28 trillion (Note 1). These assets total The volume could push the price of Bitcoin to around $200,000, consistent with predictions from financial institutions Bernstein, BCA Research and Standard Chartered Bank.

Estimated amount of funds to be invested by institutions | Image source: OKG Research (Note 1 )

Bubble first, how to hedge against rising milk prices?

As events unfold, liquidity benefitsAdding fuel to the flames has also been questioned by the market as to whether it is excessive, turning the "Trump deal" into a "Trump bubble". Tyler Cowen, the author of "The Great Stagnation", believes that bubbles are conducive to the concentrated investment of capital into emerging industries and innovative projects, and will increase the market's acceptance of high-risk early-stage projects, thus motivating entrepreneurs and investors to take bold risks and innovate. Just like the infrastructure left behind after the "Internet Bubble" of the 1990s burst in 2000 - the construction of optical fiber networks and data centers laid the foundation for the Internet+ era. After Trump's spending (stimulating the economy) timeline is clear, if the spending is more radical and excess market liquidity is suspected of being a "bubble," the crypto market will also be "driven up" by liquidity, allowing "value to catch up with price."

What needs more attention is that in terms of the asset characterization of Bitcoin, the author once proposed that Bitcoin is an amplifier of US stocks and also assumes the function of hedging real-world risks. , which leaves Bitcoin swinging in the game of liquidity and hedging against inflation. In terms of the most perceived prices, from 2019 to 2024, the average price of milk in the United States increased from approximately US$2.58/gallon to US$3.86/gallon, an increase of approximately 49.22%. During this period, Bitcoin rose by approximately 1,025%, and gold rose by approximately 73%, slightly exceeding the S&P 500 (approximately 40%), the U.S. stock index representative index for risk assets.

Even some people choose to invest in Bitcoin to protect their wealth from inflation. For example, El Salvador and the Central African Republic have adopted Bitcoin as legal tender, and Bhutan has mined Bitcoin, trying to use its scarcity and decentralization features to resist inflation risks.

In the current macro environment, regardless of short-term fluctuations, the scarcity, decentralization and global liquidity of Bitcoin's fixed 21 million coins remain unchanged. And its process of moving towards the role of value store is being accelerated as institutions and listed companies compete for allocation. This financial experiment that started with the cypherpunks will eventually find its footing in the real world.

Note 1: The amount of funds is calculated by: a. Funds and pension funds select states, states and regions that currently allow investment in Bitcoin, and select 2% as the investment ratio , and the CAGR differs between regions and regions as the growth rate for the next year, for example, the United States is 8.9%, the United Kingdom is 4.22%, and the Nordic average is 3%. b. The strategic reserve funds of listed companies are based on cash assets (market value multiplied by 5%) in major global stock markets (the United States, Germany, Japan, the United Kingdom, South Korea, Hong Kong, Singapore, India, Brazil, Australia, Canada, and Taiwan). The ratio for Microsoft is 9.5%) and multiplied by the growth coefficient (calculated, the global stock market CAG in the past ten yearsR is 9.68%) and multiplied by the investment ratio of 10% to calculate. c. Private companies are calculated simultaneously based on the currently disclosed proportion of 90% of publicly listed companies. d. In the wealth management industry, according to survey reports by Morgan Stanley, Capgemini, Accenture, etc., 71% of high-net-worth individuals have invested in Bitcoin. The wealth scale of the remaining high-net-worth individuals to be invested is multiplied by the growth coefficient of 4.5%. Multiply the investment ratio by 5% to calculate.