The United States has astonishingly approved 11 Bitcoin ETFs!
Regarding this matter, there are two perspectives:
The first viewpoint suggests that Bitcoin has reached the end of its prosperity, as it has finally found a buyer. The establishment of Bitcoin ETFs implies a significant reduction in the barriers to Bitcoin trading, allowing virtually everyone to purchase Bitcoin.
Thus, those already in the market have found buyers, as the market was previously relatively small. Why were Bitcoin's price fluctuations particularly large before, and its speculative nature so strong?
There are two factors: one is poor liquidity, and the other is the concentration of holdings. U.S. regulatory authorities have repeatedly rejected it in the past due to market manipulation.
Now, with so much capital coming in, it is natural to sell all the holdings to them. When people realize that they can never buy enough, the market will collapse like tulips.
The second viewpoint believes that from now on, it is as if U.S. regulatory authorities have issued a certificate of compliance to Bitcoin! From now on, Bitcoin officially becomes an asset, accepted by the public like gold and stocks, which means that Bitcoin becomes one of the choices for everyone's asset allocation, and Bitcoin is immortalized.
It is even said that because Bitcoin will receive a large influx of funds in the short term, it may bring about a major bull market. For investors, this is an excellent opportunity to buy.
So, is the birth of Bitcoin ETFs a destruction or immortality for Bitcoin?
To answer this question, we must return to the origin of Bitcoin—what exactly is Bitcoin? (The following is only my personal opinion)1. Financial Attributes of Cryptocurrency
I have indeed studied cryptocurrencies, which are decentralized and untraceable, with a limited supply. The specific principles are a bit complex, so I won't go into them here.
In the blockchain, mining adds blocks, and for each block added, a certain amount of Bitcoin is awarded as a reward. As the number of miners increases, the rewards decrease. Currently, the Bitcoin network controls the generation of a block every 10 minutes.
Here, we've grasped a key point: although the total amount of Bitcoin has been set by its creator to 21 million, the reward is halved every four years. What does this mean? It means the supply is limited, much like gold.
The cost of mining will increasingly rise, naturally giving it the characteristics of value preservation and appreciation, because the mining rewards will decrease, and the mining costs (reflected in electricity bills) will increase. Just like gold, the easily mined gold has been depleted, and labor costs are also rising, which leads to Bitcoin having a strong attribute of wealth storage. It is also anonymous, untraceable, and can be traded across markets.
This gives Bitcoin its inherent financial attributes. The US dollar depreciates daily, and people still want it; even more so for Bitcoin, which is continuously appreciating, like gold.
But I must say, compared to gold, are you worthy?
2. Three Major Flaws
As a currency, Bitcoin has three fatal flaws that determine its outcome.
First, bad money drives out good money.Ignoring other factors, since the supply of Bitcoin is fixed, but the market currency is continuously growing, then the price of Bitcoin will keep rising, and thus even fewer people would sell it.
This leads to Bitcoin being hoarded, reducing transactions, and increasing prices, falling into a situation where it has value but no market, which is the phenomenon of good money driving out bad money.
You might think, isn't it good that it keeps rising? Where can you find such an asset? The problem lies here. As a transactional currency, it needs to have a stable value; too rapid an increase is also not good. Therefore, Bitcoin cannot become a mainstream transactional currency.
Secondly, Bitcoin lacks commodity attributes.
Gold can be used for decoration and in industry, which are its commodity attributes, but what about Bitcoin? Apart from transactions, it has no use.
Not only is it useless, but it also poses significant harm.
The cost of printing our normal currency is almost zero, but what about Bitcoin? It has costs; mining consumes more and more electricity and computing power.
Data shows that the energy consumed by Bitcoin mining accounts for about 0.5% of the global energy total, which is more than seven times the total electricity consumption of Google's global operations.
Due to the lack of commodity attributes, Bitcoin has high costs, but its actual value is zero. What kind of problems does this create?
A lot of real resources are spent to produce trillions of dollars in virtual assets, isn't this exactly the same as the Tulip bubble?Thirdly, Bitcoin is not the only one. Due to the insufficiency of Bitcoin and its high price, some other currencies have also been mined, and the entire virtual currency will become larger and larger. Although there are only 21 million Bitcoins, currencies such as Dogecoin, Catcoin, and Cowcoin can be created using the same principles. Therefore, although the supply of Bitcoin is fixed, the supply of virtual currencies is not fixed, and it will inevitably be in excess in the future.
Have the seeds of a financial crisis already been sown? As a currency, the most important thing is trust. Once everyone bans Bitcoin or does not recognize Bitcoin assets, Bitcoin will collapse directly, and all virtual wealth will disappear immediately. At that time, it will be said that tens of trillions of dollars have suddenly evaporated, but in fact, they have been hollowed out long ago.
The problem of virtual currencies will lead to a country's resources being used for financial speculation, rather than entering the entity. Over time, it will be found that the country's economic growth rate has decreased, especially in productive goods and services. Because the country does not produce enough goods for trade, the demand for other people's goods will increase, prices will rise, the trade deficit will expand, and more currency will be exported.
In this way, with an oversupply, the currency will depreciate, inflation will rise, and then interest rates will increase. The economy cannot bear it, there is no money, and everyone will want to cash out.It turns out that no one was left to take over, and suddenly the wealth became zero, and a financial crisis ensued.
At present, the scale of cryptocurrency in the United States has risen to around $2 trillion, and the issuance of this Bitcoin ETF is likely to continue to push up the price of Bitcoin.
I can even see that the fuse for the next global financial crisis could be virtual currency.
In fact, the U.S. Securities and Exchange Commission (SEC) also disagrees, but the power of capital is infinite. The U.S. Court of Appeals for the District of Columbia ruled that the SEC's disagreement was insufficient!
This time, the SEC is being forced to drink water like a bull.
4. Why not this time?
Some people will ask, according to the situation you mentioned, Bitcoin should have collapsed last year, why didn't it?
Because last year the U.S. stock market did not fall, and the U.S. government used its own government credit to borrow money from the world to fill this hole.
With ample liquidity, how could it collapse?
Therefore, essentially, it is still because the U.S. economy and technological strength are very strong, and they can still hold on for the time being. At least when there are problems, people's money still runs to the United States.In fact, the scenario we're discussing has already occurred once before, in 2021, when Bitcoin plummeted from a high of $60,000 to below $20,000.
However, at that time, the scale of the entire cryptocurrency market was not yet large enough for the impact to be clearly noticeable.
Given the current situation, Bitcoin may reach a high of $100,000 in the future. This is because a significant amount of capital could flow in, but the supply is limited. If another downturn like that of 2021 were to occur, the outlook might not be as optimistic.
It is likely correct for our country to ban virtual currencies, as shifting focus away from the tangible and towards the intangible is undesirable.
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