When will this digital currency bubble feast end?
In the past two months, whether it is Bitcoin and Ethereum, or BNB and various DeFi tokens have risen at a frenzied momentum, although there was a wave of callbacks on the afternoon of the 22nd. Faced with such a situation, although I think the rising market will continue, I always hope to think about how long this market can last from a longer-term and macro perspective.
Here I am talking about a longer-term and more macro perspective, which refers to the time for the market to maintain an upward trend after filtering out short-term callbacks.
Before talking about digital currency, let's take the US stock market as an example to explain what is a longer-term and macro perspective.
In the article in 2019, I once thought that the U.S. stock market has already had a very big bubble, but the U.S. stock market has kept rising. Until the outbreak of the new crown epidemic last year, there were unprecedented multiple circuit breakers in US stocks from February to March. Regarding the circuit breaker during this period, I used to think that this would be the trigger point for the bursting of the US stock bubble. However, the Federal Reserve and the U.S. government have resorted to unprecedented big moves: on the one hand, they are directly zero interest rates and printing money even more frantically; on the other hand, they are directly throwing money at ordinary people again and again.
Under such measures, the U.S. stock market miraculously "resurrected", not only making up for all the previous declines, but also continuing to hit new highs. As of writing, the Dow Jones Index is almost close to 31,500 points.
If we look back at this period of history from a more macro perspective, the U.S. stock circuit breaker from February to March last year can only be regarded as a "callback", and it did not affect the continued trend of U.S. stocks. It has been a bull market since then, no matter how absurd, abnormal, or irrational this bull market may seem.
Judging from the trend of the U.S. stock market, if an investor invests in the Dow Jones Index Fund, as long as he can resist the psychological pressure caused by any decline and firmly hold on to the chips in his hand and not sell them, at least until now he has been winner.
We assume that one day in the future, the US stock market will crash again, what will happen then? I am afraid that everyone can guess without thinking: the Federal Reserve can even lower interest rates to negative values, and then the US government will use more exaggerated methods to print and distribute money. What about the extra money? Continue to flow into the stock market, the stock market hit a new high.
According to this logic, this bull market is not over. As long as an investor enters the market at any time, as long as he holds his chips and does not sell them, he will eventually be able to make a profit, because whenever there is a sharp drop, the U.S. government will print money crazily.
This logic is so ridiculous that I can't believe it myself, and I have never experienced such a stock market. But at least until now, this logic has not been broken. Although I believe it will break, when it breaks and in what form, I am afraid it will be a scene that we have never seen in history.
Just in the past few days, another piece of information worthy of attention came from the financial market: LIBOR-OIS, a key indicator for measuring interbank liquidity in the United States, is likely to fall into a negative value in history. If that happens, it will send shockwaves around the world like last year when oil went negative.
What does this indicator mean academically? We don’t need to pay too much attention to it. What we need to pay attention to is why this is the case? Because the United States will have to implement massive money-printing measures next year.
Simply put, regardless of whether there are accidents such as the stock market crash or not, and regardless of the policy that the U.S. government has or is implementing to distribute money to ordinary people, the U.S. government will have to print more than 1.4 trillion U.S. dollars in banknotes out of thin air this year. This is money the Fed is printing.
On the other hand, the U.S. Treasury has another $1 trillion to pump into the market in the next few months.
The two-pronged measures of the Federal Reserve + the Ministry of Finance will generate liquidity like a "mountain whistling and a tsunami".
Note that this is the money printed without any accidents. If there is a stock market crash or some financial accident, it will be no problem to print more money.
Where is the money going? I am afraid that only the capital market can accommodate it. All the markets we can see, including the digital currency market, will be flooded with this money.
Will the digital currency market also repeat the trend of the US stock market, and really get out of the situation of "it is never too late to enter the market"? I can't judge now, and I dare not judge. Because according to common sense, this situation does not work out, but if it does not work out, what will be the needle that pricks the bubble? I can't see it yet.
Just recently after Bitcoin jumped over $50,000, MicroStrategy, another big Bitcoin player with the same reputation as Grayscale, announced another $1 billion in financing and continued to enter the market to buy Bitcoin.
Next, this market may become more and more absurd and impact our cognition more and more, but when will this bubble burst? I'm afraid no one will know. We can only continue to closely monitor its development with a high degree of vigilance.
