The global secondary investment market reproduced the roller coaster, and the currency circle directly caused hundreds of thousands of retail investors to liquidate their positions
The Great Ark (ARK Fund) that saves mankind and Tesla CEO Musk who wants to go to heaven seem to have found a way to escape the gravity of the earth with financial means.
From the fantasy of rushing to "$100,000" to the liquidation of hundreds of thousands of leveraged retail investors overnight, the Bitcoin market has experienced a roller coaster this week.
At the beginning of this week, a single-day drop of more than 20% caused Bitcoin speculators to liquidate their positions. According to the statistics of Bitcoin Home, 340,000 people have liquidated their positions in the past 24 hours, and the amount of liquidation reached more than 20 billion yuan (6.4550, -0.0019, -0.03%). While Bitcoin once reached a peak of nearly US$58,000, it fell by 17% in the 16 hours of European and American trading on the 23rd. After falling below US$50,000, the price kept dropping and tested the US$45,000 barrier , leading to the liquidation of many leveraged retail investors. As of 16:00 on February 26, Beijing time, Bitcoin was first reported at 44,553 US dollars.
In the next step, the liquidity environment led by monetary and fiscal policies, changes in inflation expectations, the trend of institutional allocation, and the sentiment of retail investors will all be the key to determining the trend of Bitcoin, but the risk of increased leverage has soared. Yuan Yuwei, a senior global macro trader, told the first financial reporter: "When everyone is driven crazy by the inflation of financial assets, the Great Ark (ARK Fund) that saves mankind and Tesla CEO Musk who wants to go to heaven seem to have found that using financial means The way to get rid of the gravity of the earth: ARK buys Tesla and Bitcoin, Tesla buys Bitcoin, sheep (retail investors) buy ARK ETF, Tesla and Bitcoin, and the cycle is infinite. This time the global central bank is crazy to release water and borrow money , the whole people are frantically grabbing dividends from the future, and no one dares to imagine the final outcome."
The product of institutional allocation and retail speculation
The story of Bitcoin soaring since last year sounds pretty good — and institutions stepped in to build up their holdings. But in fact, the speculative stories of retail investors increasing their leverage and liquidating their positions are ignored under the feast of liquidity.
In March 2020, as the new crown epidemic swept the world and caused a huge shock in the financial market, on the evening of March 12, Bitcoin plummeted by nearly 50%, from nearly $10,000 to a minimum of $3,800. At that time, it was even said that Bitcoin might to zero.
In the ensuing two months, Bitcoin rallied to around $6,000. Since then, Bitcoin has climbed like crazy.
When Bitcoin broke through $10,000 from the beginning of October 2020, it was possible to observe signs that institutions began to enter the market. For example, on October 8 of the same year, the mobile payment giant Square suddenly announced an investment of US$50 million in Bitcoin; The company purchased more than 10,000 bitcoins, worth approximately US$114 million; on October 22, PayPal, the world's largest cross-border payment platform, announced that it would allow users to buy, sell and hold cryptocurrencies on the platform; on October 27, DBS Bank, Singapore's largest commercial bank, has announced that it will offer cryptocurrency transactions.
During this period, Grayscale Fund was the main driving force behind the scenes. Grayscale’s Bitcoin Fund (GBTC) allowed institutions to have a compliant and convenient channel to purchase Bitcoin. In this context, "Queen of the Bull Market" Wood is also a key figure. Wood's ARK fund invests heavily in Bitcoin, and the specific operation is to participate in Bitcoin investment by purchasing GBTC. Although the ARK fund cannot hold cryptocurrencies directly, Ms. Wood started buying shares in the Bitcoin Investment Trust (GBTC) in 2015 when bitcoin was trading below $250. ARK's two funds - ARKK and ARKW's positions in Bitcoin reached a level of 6%-10% at that time, and in the past three months and even last week, ARKW has also been increasing its position in GBTC.
Currently, ARKW holds 5.2243% of GBTC, with a market value of $499 million. This week, during the gradual rise of GBTC, ARKW has also been increasing its positions, with a total of 479,700 shares. As of February 25, the number of Bitcoins held by GBTC was 655,600, with a position value of $32.283 billion.
On the surface, it seems to be an institution, but the high speculative sentiment of retail investors is also the key. Not to mention retail investors who directly speculate in blockchain asset exchanges, the proportion of retail investor positions in several ETFs under ARK almost exceeds 80%. The recent slump has caused hundreds of thousands of leveraged retail investors to liquidate their positions, and this kind of story has been common in the past year. "I cashed out bitcoin today and bought a few hands of Moutai to hedge risks." A bitcoin miner told reporters earlier this week. This undoubtedly reflects the frenzy of the entire market.
Several major factors in the flash crash determine the follow-up trend
As of now, Bitcoin has not recovered its vitality, and it continues to climb around $50,000. There are several major factors in the future that cannot be ignored.
First of all, the main driver of this flash crash is the rise in inflation expectations. Li Lianxuan, chief researcher of the Okey Cloud Chain Research Institute, told the first financial reporter that with the rapid advancement of vaccines around the world, the global economic recovery is expected to heat up, which has pushed up inflation expectations. Worries are increasing, which is also the reason for the recent adjustments in major global stock markets and digital currency markets.
At the same time, the increase in encrypted assets in the early stage was relatively large, accumulating callback pressure. The main driving force for Bitcoin’s rise during this period was Musk’s continuous “calling orders” on Twitter, which led to the influx of funds and quickly pushed the price of Bitcoin to $58,000 in a short period of time. The exorbitant price and large increase of Bitcoin made the market more sensitive to the risk of Bitcoin price, and some funds were withdrawn at a profit, and they took profits in time to avoid risks, which caused a market correction. In the future, the allocation of ARK ETF itself and the redemption of retail investors will dominate the trend of Bitcoin.
In addition, the story of institutional allocation sounds beautiful, but investors must not ignore its negative effects. According to ARK research, if all companies in the S&P 500 allocated 1% of their assets to Bitcoin, the price of Bitcoin would increase by around $40,000. However, Li Lianxuan told reporters that this will also make Bitcoin more and more vulnerable to the influence of external markets. Recently, the world's major financial markets have turned from a continuous rise to an adjustment. Investors will also adjust the allocation of Bitcoin out of the need to maintain liquidity or avoid risks, which will cause the price of Bitcoin to fall.
Recently, Canadian regulators approved North America’s first Bitcoin-tracking ETF and began trading on the Toronto Exchange, with a trading volume of more than 9.65 million shares on the day, and the SEC may follow suit. It seems to be good news, but its negative effects may also be magnified during the plunge. In contrast, GBTC has no redemption mechanism and requires lock-up after subscription, which indirectly pushes up the price of Bitcoin. However, in traditional ETF fund transactions, T+0 transactions can be realized between the primary and secondary markets. However, currently GBTCSubscription shares in the primary market can only be sold in the secondary market after 6 months. Therefore, it can be said that the launch of Bitcoin ETF will boost investors' enthusiasm and convenience for trading, but it will also increase selling pressure to some extent.
Finally, the duration of the liquidity feast directly determines the future of Bitcoin. Although the Federal Reserve currently expresses its patience, once the market's inflation expectations rise again, the story of "explosion" will definitely emerge again.
