Inflow of speculative funds amid a sharp increase in the amount of money in major countries after the Corona 19
Reduced mining volume increases scarcity, but question mark for intrinsic value
Amid the surge in currency volume in major countries after the Corona 19 crisis, speculative funds were rushing at once, and bitcoin prices soared to an all-time high by the beginning of the year. Due to the nature of the bitcoin supply based on the amount of mined, the scarcity continues to increase and a supply advantage market may be formed over time, but the intrinsic value still has a question mark, and recently it is showing a decline with a bubble controversy.
According to Bithumb, a virtual asset trading platform on the 18th, as of 12:51 pm on the day, the price of bitcoin is recording 39035,000 won per piece (1BTC), down 1181,000 won (2.94%) from 24 hours ago.
At the same time, on Upbit, a digital asset exchange, Bitcoin is trading at 3906 million won per piece, down 476,000 won (1.20%) from the previous day.
The price of bitcoin traded in Korea (hereinafter based on Bithumb) soared 11% each on the 7th and 8th, hitting a record high of 47449,000 won per piece based on the closing price on the 8th. However, after peaking on the 8th, it plunged 21.3% in total for 4 trading days and hesitated to 37332,000 won.
◇ Inflation hedge appeal emerged due to overflowing liquidity
Experts believe that the rise in bitcoin prices, which appeared until the beginning of the year, was influenced by the decrease in the value of money and the inflow of institutional funds due to increased liquidity. After May last year, the period when the amount of bitcoin supply (mining) was cut in half (half-life) was also analyzed as a factor that raised the price.
According to the Bank of Korea’s announcement on the 13th, the amount of money in the market in November last year reached 3178 trillion won, an increase of 27.900 billion won (9.7%) from the same month of the previous year based on the M2.
In addition, according to the International Financial Center report, the net issuance of US Treasury bonds last year reached a record high of 4 trillion dollars. The U.S. Fed has bought over $2 trillion in mid- to long-term Treasury bonds since March. The Fed is supplying liquidity to the market by purchasing assets worth $120 billion per month. The Fed’s assets have increased from $3 trillion before Corona 19 to more than $7 trillion today.
Dae-hoon Han, a researcher at SK Securities, said, “With enormous liquidity and the supply of the dollar, the value of the currency is inevitable, and the pressure for the weakening of the dollar is inevitably increased.” Entry into the virtual asset market is expected to lead to inflow of funds.”
In addition, Park Sang-hyun, a researcher at Hi Investment & Securities, said, “Since last year, the global liquidity has expanded and all asset prices have risen. In addition to the demand from US-centered institutions, and speculative incentives are linked, etc.” “In terms of supply and demand, demand is low, but supply is limited, so in that respect, the price may rise,” he explained.
◇ Limited supply… Acquisition of practicality is also a skeptical perspective
Bitcoin has no cash flows like interest or dividends. The total supply is 21 million units, which is unchanged. The supply of bitcoin can be increased only through an act of’mining’, and the amount of bitcoin that is given as a reward through mining in this way continues to decrease by half every 3 years and 9 months.
Currently, the reward has been reduced from 12.5 to 6.25 per block. The cumulative issuance amount is 18.6 million 2750 units, or 89% of the total. Bitcoin is expected to generate 99% of the fixed issue volume around 2030, and supply is expected to end around 2140.
Some explain that the skeptical outlook is stronger in terms of practicality. Currently, Bitcoin cannot function as a currency in Korea. In the United States, the payment platform PayPal recently allows bitcoin transactions, but it is known that transactions are possible only within the platform, not a structure that allows external deposits and withdrawals.
Local media, including Bloomberg News, pointed out that the recent bitcoin price rally has sparked controversy over whether it is a promising asset or a bubble. A series of warnings by policy makers in major countries also has a negative impact on investment sentiment.
Last week, the British Financial Supervisory Service (FCA) told cryptocurrency investors such as Bitcoin that “if consumers invest in this kind of product, they must be prepared to lose all their money.”
In the same week, the head of the European Central Bank (ECB) Christine Lagard said it was a “very speculative asset.”
Peter Branner, Chief Investment Officer of APG Asset Management, said in an interview with Bloomberg News on the 15th (local time) that “Bitcoin is not supported by the central bank,” and “it is only valuable when people give it value.” .
◇ Prospect of’digital gold’ in preemptive effect… Building trust’the key’
The evidence that bitcoin is a promising asset is that the current bitcoin reliability is significantly lower than that of gold. For example, the expansion of domestic portal companies’ global market dominance is the same logic that can be a factor of a much larger share price increase than the expansion of market power such as Google.
Some point out that it is difficult for a new asset that can replace Bitcoin among digital assets to appear. As of this day, the market capitalization of coins around the world exceeds $1 trillion, and Bitcoin is the No. 1 market capitalization ($71.94 million), accounting for 66.2% of the total.
Bloomberg said that the number of cryptocurrencies and tokens continues to increase, now exceeding 1000, but Bitcoin has been proven to be valid over the longest time and has the highest recognition and value. In this respect, it is predicted that the possibility of a new coin that can generate an asset effect such as’digital gold’ other than bitcoin will appear very slim.
Kim Hyung-joong, a professor at the Graduate School of Information Security at Korea University, said, “If we think about why the gold price rises, there is a belief that the gold price will eventually rise.” That’s why people can think that the price of Bitcoin will continue to rise.”
With the trend of crypto assets such as bitcoin coming into the institutional sphere, an analysis appears that the key to the future is whether or not to establish trust. In Korea, a 20% transfer tax is imposed on the transaction income of’virtual assets’ such as bitcoin after January 1 of next year from 2.5 million won or more.
Professor Kim Hyung-joong of Korea University said, “At first, there were many people who thought it would be a currency, but now it is used as a currency, so there is a side that the price has risen too much.” “It’s a new type of asset.”
Meanwhile, Guggenheim Investment predicted that in December last year, Bitcoin could reach $400,000 each, and JP Morgan is competing with gold as an alternative asset.
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