Who is controlling the cryptocurrency market?

On October 19, the first Bitcoin futures ETF in the United States went online on the New York Stock Exchange. It is expected to attract more than US$50 billion in capital inflows in the first year. This has boosted the confidence of Bitcoin investors.

Since the epidemic, the ups and downs of Bitcoin have increased significantly. This year has experienced a wave of skyrocketing, setting a record high of $65,000 on April 14.

However, under China’s new round of strengthening virtual currency supervision. All exchanges and mining pools announced that they would clean up mainland users before the end of the year, which caused the price of Bitcoin to plummet again. In the plummet on May 19, the price of the currency fell all the way to a minimum of 29,000 US dollars. However, after half a year, the price of Bitcoin once again stood at the $60,000 mark in October and returned to a historical high.

After encountering China, which is the largest computing power and the user country, why does Bitcoin continue to rise so capriciously? What is the driving force behind it? Who is investing in Bitcoin?

Why Bitcoin is soaring

First of all, Bitcoin, as a cross-regional and cross-border financial derivative, is actually difficult to be dominated by a single country’s policies.

Although the severe Chinese policy has driven Bitcoin out of the Chinese market from mining to trading, the overall impact on the global market is not large. China’s original large-scale trading demand has not disappeared. Bitcoin exchanges represented by Huobi, Binance, and OKEX only announced their withdrawal from the mainland market, and then went to overseas markets such as Europe and the United States to find another way out.

Secondly, Bitcoin can skyrocket, mainly because the balance of supply and demand in the market is constantly being broken, and the demand is much greater than the existing amount of Bitcoin.

Since the outbreak of the new crown epidemic in 2020, global central banks, especially the United States, have released a large amount of water, but the released liquidity has not achieved the purpose of stimulating economic development. The rise also benefited from this.

Market energy switching

In order to minimize asset losses caused by inflation and depreciation, Bitcoin, known as “digital gold”, has become the best hedging tool favored by capital in addition to gold. More and more financial institutions are entering the digital currency market aggressively, making the already limited number of bitcoins even more scarce. The price of Bitcoin has naturally risen all the way, setting new records time and time again.

Among them, the most eye-catching is undoubtedly the Bitcoin Trust Fund GBTC launched by Rayscal. As of the end of 2020, the total scale of GBTC has reached 16 billion U.S. dollars, or about 607,000 Bitcoins, accounting for nearly 3.26% of the current total circulation of BTC. At the beginning of 2020, Grayscale had only about 260,000 bitcoins in his hands. In one year, they bought 347,000 bitcoins, which is breathtaking.

Not just emerging investment institutions, the established American insurance company Massachusetts Mutual Life Insurance also disclosed not long ago that it has purchased $100 million worth of Bitcoin for its general investment fund. In addition, Singapore’s DBS Bank has also begun to build a Bitcoin trading platform for institutional investors and qualified investors.

The massive entry of large institutional investors has quietly changed the Bitcoin market that was once promoted and hyped by retail investors.

As Bitcoin has begun to become a new tool for mainstream finance and even international geopolitical games, and as the price of Bitcoin continues to soar, its investment risk has also increased proportionally, which directly caused the proportion and influence of retail investors to plummet , The nature of transactions also tilted from investment to speculation.

Generally speaking, retail investors are more speculative, and institutions are more investment properties. However, in the Bitcoin market, this distinction is not obvious. The addition of more financial institutions has not made the price of Bitcoin more stable. Instead, it has amplified fluctuations and skyrocketed. The extent of the plunge is often surprising, far exceeding other financial products.

research report

Chainalysis research shows that the composition of Bitcoin holders has changed significantly with the expansion of Bitcoin consensus and the expansion of the market. From the previous investment model that was dominated by long-term investors, the proportion of short-term investors continues to increase, and the frequency of transactions is increasing. The improvement is obvious.

In its 2021 report, the crypto-analysis company Glassnode even stated that 2% of people control 71.5% of Bitcoin, and retail investors hold nearly 23%. However, “whales are accumulating”, behind which a large number of financial institutions and various types of Open-end funds and all kinds of complicated modern financial derivatives are involved. It can be said that the vast majority of Bitcoin is in the hands of investment giants.

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