Whether it is in a bear market, how should we judge?

Policy factors cause market panic

On May 18th, China’s three major industry associations collectively voiced that the “currency circle” ushered in heavy regulatory crackdowns, which attracted attention. Cryptocurrency transactions must be reported to the US Internal Revenue Service, which is seen as an important part of the Biden administration's proposal to strengthen tax compliance. Whether this proposal can be passed still needs to wait for subsequent results. The proposal caused Bit to bottom out at $29,000 on the day before retracing to $42,000.

On May 21, the Financial Stability and Development Committee of the State Council (hereinafter referred to as the Financial Committee) held its 51st meeting to study and deploy key tasks in the financial field for the next stage. The meeting was chaired by Liu He, member of the Political Bureau of the CPC Central Committee, vice premier of the State Council, and director of the Finance Committee. It is required to strengthen the supervision of financial activities of platform companies and crack down on Bitcoin mining and trading behaviors. Here we are talking about crackdowns, not complete "prohibition".

Federal Reserve Harker claimed on Saturday, May 22 last week that cryptocurrencies do not account for enough of the financial system to pose financial stability risks. Domestic media reported that Federal Reserve Chairman Rom Powell said: "Bitcoin has financial systemic risks and needs to be strictly controlled and cracked down."

In fact, Rom Powell's original words are: "Virtual currency is used for speculative assets, with high volatility and high risk. Bitcoin is a substitute for gold, not a substitute for the US dollar. Federal Reserve Chairman Powell emphasized that Bitcoin's high volatility is its main reason. The major flaw of not being able to replace the U.S. dollar, while pointing out that Bitcoin is effectively a substitute for gold. After Fed Chairman Jerome Powell dismissed Bitcoin’s chance to challenge the U.S. dollar as a medium of exchange, he said the cryptocurrency could replace gold .”

Bitcoin has responded to the previous bad news, and it has plummeted for a week. The domestic news media have overwhelmingly reported that the Bitcoin plunge is bad. Panic, forcing users to sell their assets.

Whether it is in a bear market, how should we judge?

Bitcoin has fallen sharply and funds have withdrawn. Is the bull market peaking? Recently, many people have been asking whether Bitcoin will crash. It is too early to draw a definite conclusion about the bear market. Market history shows that the bull market ranges from four to eleven years, with a large increase in the first year, followed by a longer period. bull market period.

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(Image source WIND)

In the red range, the two are rising at the same time, and in the green range, both are falling at the same time. This is because the ten-year U.S. bond represents two trends. First, it represents the activity of the market. The more active the investment in the market, the lower the price of U.S. bonds and the higher the yield. The second represents the windless interest rate index. As the economy rises, the risk-free interest rate will also rise. In the end, excessively high interest rates will affect market investment sentiment, thereby pulling down stocks and economic trends. This is the case of the bull-bear financial cycle Forming.

However, due to the continuous expansion of the U.S. stock market bubble in recent years and the growing disconnect between finance and real estate, even if U.S. bond yields fall in 2019, U.S. stocks are still on an upward trend.

Looking at the relatively large stock market declines or stock market crashes in history, it is not only related to the financial indicators of U.S. bond yields, but also directly related to economic growth. The inflection point of U.S. bond yields from high to low, the interest rate The inflection point, which must be accompanied by a simultaneous economic decline, is a relatively obvious signal of a market crash. If the growth of the real economy does not significantly stagnate, even if the financial data shows a signal of peaking, it only indicates a small and medium-sized retracement .

In fact, we can see from historical data that the U.S. economy has long had a rule of chaos. The global economic recession between 1929 and 1933 lasted until the end of 1940, before the Second World War. The most serious global economic recession, the stock market fell on October 24, 1929, and became the 1929 Wall Street stock market crash on October 29, and swept the world. International trade dropped by 50%, and the unemployment rate in the United States soared to 25%. , The price of agricultural products fell by about 60%, which hit agriculture hard.

From 1969 to 1970, stagflation occurred in the United States, and the economic growth rate declined. The Dow Jones Industrial Index dropped from 950 points to 790 points. The second oil crisis broke out in 1979, the stock market fluctuated greatly throughout the year, and the economic growth rate fell from 3.1 to minus 0.25.

Junk debt and the third oil crisis broke out from 1989 to 1990. The US economic growth rate dropped from 3.6 to 1.8. Although the stock market did not fall in 1989, it fell sharply in 1990. Then in 1999, the Internet stock bubble happened.

The economic crisis from 2008 to 2009, the world financial crisis, the subprime mortgage crisis, and the credit crisis caused investors to lose confidence in securities. Everyone is very familiar with this financial crisis.

Therefore, in the year of "9", the economic crisis and stock market decline are easy to break out in the year before and after. Their common feature is a very obvious decline in GDP growth rate, accompanied by a decline in the stock market and changes in the yield rate of the bond market. But now the United States The GDP growth rate is gradually returning to normal levels, and the economy is beginning to resume operation. Unless there is some unpredictable unexpected situation, the real economy is still unlikely to be hit hard in the short term, so the short-term stock market crash is not yet in sight. It will happen, and the stock market will not crash, which means that Bitcoin will not crash with it, but a retracement in the medium and long-term stock market or currency market, or even a relatively large retracement, is possible.

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(The picture comes from Yingwei Caiqing)

Then it entered an upward cycle, and the current U.S. bond yield exceeds 1.6. From this, it can be judged that the interest rate hike cycle is from the second half of 21 to the beginning of 22. What needs to be noticed is that there will be a major reversal in the future, and the general U.S. bond yield Within a quarter of the rate reversal, the financial market will lead to a phased top, followed by a correction in asset prices, interest rates will also fall, and then usher in the next cycle.

Now Biden's policy is still taking effect, and the financial market is still enjoying the bonus policy of Biden's policy plus epidemic subsidies. When interest rates are normalized, the economic growth rate will normalize and return to the right track. At that time, the factors that trigger the major shocks in the US investment market are more likely to be the combination of the Biden team’s big government economics of robbing the rich and helping the poor, and geopolitical conflicts. Influence, the so-called success is also Biden, and failure is also Biden.

Hope you can understand what I'm saying.