Recently, the U.S. 10-year Treasury yield broke through 1% again, the U.S. dollar rebounded, and Bitcoin once plummeted by 27%. Are the three related?

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1 USD and Bitcoin

Generally speaking, higher U.S. bond yields will stimulate a stronger U.S. dollar, because global funds have no loyalty at all, and wherever interest rates are high, they will go where they want.

As for the reasons for the rise in U.S. bond yields, the general consensus is that the dust of the U.S. election has settled, the Democrats control both houses of the House of Representatives, and the market expects the Democratic government to launch a new round of fiscal stimulus.

In the past, whenever U.S. bond yields rose for a period of time, or to a certain extent, it would have varying degrees of impact on the global market.

Another factor in the market's expectation of an imminent strengthening of the dollar is that Yellen, the next treasury secretary, may oppose Trump's policy of weakening the dollar.

Chuan Dakou has repeatedly expressed the view that "the US dollar is too strong", believing that an overly strong US dollar will damage US competitiveness, while a weak US dollar will help US exports.

The guy finally stepped down and the dollar ushered in support.

Historically, the rise and fall of Bitcoin has been negatively correlated with the U.S. dollar.

Some people may not believe it, so first look at the two pictures.

Here is the chart of Bitcoin,

It's in dollars.

The big bull market of Bitcoin in 2017 was a big bear market for the US dollar.

The bitcoin bull market from March last year to the present is another US dollar bear market.

Over the past 10 months, the U.S. dollar has lost 12.4% of its value, while BTC/USD has surged 935% over the same period.

Interestingly, BTC/CNY only appreciated 842%.

why? Because the U.S. dollar has depreciated by 9.2% against the renminbi.

Speaking of this, I think of one thing. In October last year, an investment tycoon next to me complained, "Damn it, the money (dollars) earned from external futures has been wiped out by the appreciation of the renminbi."

Friends who are engaged in foreign trade are also worried about the rapid rise of the renminbi. In March last year, earning 100,000 knives can be exchanged for 700,000 yuan, but now it can only be exchanged for 640,000 yuan. This 60,000 profit can only be made up by a large order.

In other words, there is a huge difference in the rate of return depending on what currency you use to buy Bitcoin.

The U.S. dollar has only lost 9% against the Chinese yuan, but the returns of BTC/USD and BTC/CNY are nearly doubled.

Don’t underestimate the 1-fold return. If you feel that you can’t earn 10 times or 100 times in the encryption circle, you will be ashamed to meet people.

But if you imagine, the world's most powerful hedge funds have an average return of only 20-30% per year, and super tycoons such as James Simmons have about 40%.

Last year, the epidemic spread across the world, and most of the funds with the highest domestic yields matched their funds in the medical and technology sectors. When I researched these funds in August, the rate of return of the TOP10 funds in the first half of the year was just over 1 times.

Of course, if you feel that you must be a fat house in the encryption circle, Bitcoin (200,000 dollars rolled to 500,000 dollars), Li Xunhuan (200,000 dollars to 5000,000), or Bill Ackman, the wolf of Wall Street (27 million dollars to 2.6 billion dollars) , then ignore the 1x return.

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2 In the era of weak dollar, everything appreciates

For the general public, especially stock investors, for most of last year, they could "go out laughing at the sky, and come back after all the money is gone."

Because retail investors ushered in their highlight moment.

Data from November last year showed that retail investors in the United States earned 55%, and the ratio of income to hedge funds actually reached 10:1.

The three major U.S. stock indexes, Nasdaq, S&P 500 and Dow Jones rose by 99%, 75% and 71% respectively.

In terms of commodities, gold, silver and Lun copper rose by 28%, 121% and 91% respectively.

Of course, the most exaggerated is the encryption market.

The total market value of encrypted digital currency has increased from 125.4 billion US dollars in March last year to 1.07 trillion US dollars, an increase of more than 7 times.

However, many people did not make money because of the contract liquidation.

All of this may be due to the continuous release of water by the Federal Reserve and major global banks.

As of the week before Christmas last year, the Fed's balance sheet reached a record $7.4 trillion, $3 trillion more than before the epidemic.

Why is there such a big difference in the gains of the stock, commodity and crypto markets?

This is mainly due to size.

The total market value of global stocks exceeded 100 trillion US dollars for the first time at the end of last year, while the total market value of gold and silver today are as high as 11.8 and 1.4 trillion US dollars respectively.

In contrast, the total market capitalization of cryptocurrencies has only recently topped $1 trillion.

Therefore, $10 billion invested in the stock market can only cause a little disturbance. But in the encryption circle, it is 1% of the total market value. With the effect of leverage, it will cause huge waves.

In the traditional stock market, projects with tens of millions of financing are not ashamed to report, because the actions of billionaires and billionaires abound.

As for the encryption circle, hundreds of thousands of financing is not uncommon.

Polkadot ecology funded more than 200 projects last year. What is the total amount? $17 million, with an average of $8.50 per project.

Coinbase Ventures is a well-known investment institution in the encryption circle. It recently invested US$1 million in Compound and dYdX respectively. This is a very large financing project.

Therefore, when investment tycoons such as Paul Duzer Jones and Dario turn their attention to the cryptocurrency market, it is no different from a giant dragon swimming in the sea looking down on a small pond.

When the market value of encryption was only hundreds of billions of dollars, the unknown MicroStrategy invested hundreds of millions of dollars, and naturally became an existence that could not be ignored.

Saylor, the founder of MicroStrategy, will not be valued at all if he is placed in the circle of investment leaders such as Dalio, Ackman, Simmons, and Einhorn.

However, there will be a phenomenon that everyone will focus on Bitcoin: hold together the leading currency, and make quick money lazily.

"There are tens of thousands of logics, and the first one is to make money." With good performance, there are audiences for everything.

MicroStrategy, which had been losing money for several years before, tripled its share price last year. The core reason is that it bought Bitcoin to make a profit. It is really "a handsome man hides a hundred ugliness", so Saylor has become a diehard fan of cryptocurrency.

In addition, another important reason for institutions to enter the cryptocurrency market is to release wealth management products based on investor needs, which can charge considerable fees.

Hedge funds usually charge 2% management fee plus 20% performance commission, among which the well-known Grayscale products charge 2-3%.

The assets managed by Grayscale Bitcoin Trust have grown from US$2 billion at the beginning of 2020 to US$23 billion today, which shows investors' enthusiasm for digital currency assets.

Goldman Sachs, JPMorgan and Citi are all said to be considering cryptocurrency custody.

"Everyone loves good things, so they should be sold well, and they should be expensive."

Like an IQ tax?

As mentioned above, if the US dollar is weak, the opponent will naturally be strong.

You can see that the investors of EOS have all run away with the founder BM. A project that is almost deserted, still has a price increase of 48% from the low point in March last year.

As for BM, the titles of "scumbag" and "family slave with three surnames" have finally been implemented.

When the wind blows, pigs can fly.

It is very difficult for a god-like opponent to lose when he becomes a pig.

Even XRP, which is regulated by the SEC and exerted external pressure, still more than doubled (up to 4 times) during the same period.

When the strong dollar becomes weak, it is tantamount to sending out a message: Please rise quickly.

Ever since, it was not only the 100-fold currency in the big bull market in 2017, but also the projects of stinky salted fish in 2018-19, such as VGX, which turned around and ushered in a 38-fold increase in the past year.

However, it is still down 89% from its peak market value in 2017.

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3 Is the depreciation of the dollar over?

At the beginning of this month, the Federal Reserve released the meeting minutes, and the word "taper" appeared prominently. This is the first time that this word has appeared in the Federal Open Market Committee (FOMC) document since Powell took office.

The word sparked a movement: Market rate hike expectations are changing.

That is to say, the market expects the Fed to raise interest rates at a faster pace and to fade out QE more vigorously.

Morgan Stanley said, "We have turned neutral on the dollar amid rising odds of fresh U.S. fiscal stimulus and crowded dollar trades."

Li Qilin, chief economist of Hongta Securities, said, “Due to the restoration of the fundamentals of the U.S. economy, rising inflation, and rising interest rates, the U.S. dollar may reverse its trend. 89 is roughly the bottom of this cycle of U.S. dollar decline.”

The recent appreciation of the US dollar is also right.

What Happens to the Crypto Market If the Dollar Continues to Appreciate?

We know that from 2018 to the first quarter of 2020, there was a big bull market for the US dollar, which rose by 16.7%.

During the same period, Bitcoin and Ethereum plummeted 83% and 94% respectively from their highest prices, and the total market value of digital currencies shrank by 85%.

Considering that the decline of Bitcoin is smaller than that of the broader market, and its market value has a huge proportion, this means that most of the small-cap coins have fallen more severely.

Therefore, the first thing to run in a bear market is small-cap currencies.

How high will the dollar go?

He said:

He said:

"Last year, China grew by 2%, while the U.S. retreated by 4%, and the RMB appreciated by 9% against the U.S. dollar. If you do the math, you will find that China's economic aggregate today has reached 75% of that of the U.S. In the next 30 years, the U.S. economy may only be China's. 75%."

The world pattern of dollar hegemony has been shaken. The U.S. dollar is still very playable, but not as good as it used to be.

Therefore, even if the crypto market ushers in a big bear market, it may not be as strong as the last time.

My personal judgment is that the U.S. dollar may appreciate by 10% in the medium and long term.

If the U.S. dollar rises by 17% and the crypto market falls by 85%, if the U.S. dollar rises by 10%, the crypto market may fall by 50%. If panic and leverage effects are added, the decline may be even greater.

Of course, investors are most afraid of being single-minded.

When I invited an option expert from Tsinghua University to give a lecture last year, he said something that I remember deeply. "Winning is in revision, not in prediction," he said.

Soros also said, "invest first, then research".

What if the dollar appreciates briefly and then continues to depreciate?

Taking the year as the cycle, from a technical point of view, it is judged that the bottom of the US dollar index is around 82, which is about a 9% drop from the current price of 90.

As mentioned earlier, the U.S. dollar has depreciated by 12%, the price of Bitcoin has increased by 9 times, and the market value of encryption has increased by 7 times.

However, today's volume is different, and the marginal utility of the depreciation of the dollar will also diminish.

From 3800 to 38000, to calculate the future growth rate of Bitcoin at the current price, it may be divided by 10 times. Then, if the U.S. dollar falls by 9%, Bitcoin may rise by 75%, and the future price may be around $70,000, with a market value of $1.5 trillion.

Bitcoin accounts for about 70% of the total market value of the encryption market, so the total market value of encryption is estimated at 2.1 trillion U.S. dollars, and there is still room for a double increase.

Of course, the market may not go as we predicted.

Every sad ending has a warm beginning.

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4 When does the bubble burst?

According to Bank of America, Bitcoin is simply the "mother of asset bubbles" that the world has encountered in recent decades.

The crazy surge in US stocks has already made the old debt king sigh, "Oh, I am too old. Tesla has been overvalued by crazy retail investors."

It is worth mentioning that value investing tycoons such as Michael Barry and David Einhorn have increased their airdrop bets, waiting for the bubble to burst.

Recall that on 312, US stocks fell by the limit, and Bitcoin plummeted by 50%.

There is no crisis without madness, and great crisis comes after great madness, which has always been the case.