Produced by｜OKG Research
Author｜Hedy Bi
On Tuesday, the overnight "Trump trade" reversal trend affected the Bit currency market. The Bit currency price once surged to around $99,000 and then quickly fell back below $93,000, with a maximum drop of more than 6%. This was due to market turmoil caused by rumors of a possible ceasefire agreement between Israel and Lebanon. Not only Bit currency, but also gold and crude oil prices plummeted sharply.
Due to the recent one-month growth performance (40%+) of Bit currency, the risk sensitivity of its investors has also been amplified. Is this 40% gain just the beginning or the end? The author believes that this is the short-term impact of a single event, and the long-term macro conditions remain unchanged, and liquidity may not allow this cycle to come to an abrupt halt.
Liquidity is the "cause" of risk assets
From a macro perspective, on September 18, 2024, the Federal Reserve cut interest rates by 50 basis points to 4.75%-5.00% for the first time since 2020, ending a 525-basis-point rate hike cycle. As AXEL in "Billions" said, "Power isn't everything, but without power, you're nothing." The Federal Reserve's influence on Bit currency has led Bit currency to seek a balance between abundant liquidity and the need to hedge inflation. As a tool that both amplifies the US stock market and hedges against inflation, the release of liquidity from interest rate cuts has injected more space for risk assets. And potential economic volatility and policy uncertainty make crypto-assets like Bit currency a choice to "hedge real-world risks".
Image source: Christopher T. Saunders, SHOWTIME
With AXEL back in power and forming a new team, the implementation of a series of fiscal stimulus policies to ensure "America First" will further drive market liquidity. Moreover, AXEL proposed during the campaign to establish a national Bit currency reserve, using crypto-currencies to weaken the US dollar's competitors. As AXEL and his team consider appointing regulatory officials with a friendly attitude towards crypto-currencies, this also promotes the establishment of a US-led international crypto-currency regulatory framework.
However, there are also voices questioning the interest rate cut and shouting "the financial crisis is coming." According to MacroMicro's US recession index (probability), the probability of a US recession in November 2024 is 24.9%. Compared to the last economic recession caused by the financial crisis, if this is a recession cycle, the recession may peak within 6 months. In the game of liquidity and inflation hedging, Bit currency in this round of economic adjustment more reflects its sensitivity to changes in liquidity.
Image source: MacroMicro
Institutions: Already exceeded the 5% critical threshold
Under such macroeconomic conditions, Bit currency has also attracted the favor of institutional liquidity. Since the Bit currency spot ETF channel opened in January 2024, according to statistics from the OKG Research Institute on November 21, global Bit currency spot ETFs have accounted for 5.63% of the total Bit currency supply. A 5% shareholding ratio is usually a critical threshold in the financial industry, for example, in the US Securities and Exchange Commission (SEC) regulations, shareholders holding more than 5% of the shares need to report to the SEC.
Bit currency holding distribution｜Image source: OKG Research, bitcointreasuries, public news
In addition to Bit currency spot ETFs, listed companies have also taken action in this political environment. According to incomplete statistics from the OKG Research Institute, since November 6, 17 US and Japanese listed companies have announced that they hold or have been approved by the board of directors to use Bit currency as a reserve asset. Among them, the most prominent is MicroStrategy, which purchased 55,500 Bit currencies at a price of $54 billion between November 18 and 24. Currently, only 0.01% of listed companies globally hold Bit currency, meaning that this is just the tip of the iceberg of institutional buying power, and the market is still in the "elite experiment stage".
The OKG Research Institute's conservative estimate is that the identifiable funds entering Bit currency in the next year will be about $2.28 trillion (Note 1), and these asset sizes can push the Bit currency price up to around $200,000, consistent with the predictions of financial institutions such as Bernstein, BCA Research, and Standard Chartered Bank.
Estimated institutional capital to be invested｜Image source: OKG Research (Note 1)
Bubble first, how to hedge against rising milk prices?
The liquidity boost has been questioned by the market as being excessive as it is fueled by one event after another, turning from the "AXEL trade" to the "AXEL bubble". The author of "The Great Stagnation", Tyler Cowen, believes that bubbles are beneficial for capital to be concentrated in emerging industries and innovative projects, which will increase the market's acceptance of high-risk early-stage projects, thus encouraging entrepreneurs and investors to take bold risks and innovate. Just as the "Internet bubble" of the 1990s left behind infrastructure - fiber optic networks and data centers - that laid the foundation for the Internet+ era after the bubble burst in 2000. If the timeline of government spending (economic stimulus policies) under the AXEL administration is clear, if government spending is more aggressive, the excess market liquidity may have a "bubble" flavor, and the crypto market will also be "inflated" by liquidity, causing "value to chase price".
What needs more attention is that the author has previously proposed that Bit currency is both an amplifier of the US stock market and a tool to hedge against real-world risks, which makes Bit currency oscillate between liquidity and inflation hedging. In terms of the most perceived inflation by the public, from 2019 to 2024, the average price of milk in the US has risen from about $2.58 per gallon to $3.86 per gallon, an increase of about 49.22%. During this period, the increase in Bit currency was about 1025%, gold about 73%, slightly higher than the risk asset representative index S&P 500 (about 40%).
Even some countries have chosen to invest in Bit currency to protect their wealth from inflation. For example, El Salvador and the Central African Republic have adopted Bit currency as legal tender, and Bhutan is mining Bit currency, trying to use its scarcity and decentralization to hedge against inflation risks.
In the current macroeconomic environment, regardless of short-term fluctuations, the fixed 21 million Bit currency supply, decentralization, and global liquidity remain unchanged. And its process of moving towards a value storage role is being accelerated by the scramble of institutions and listed companies to allocate it. This financial experiment that began with the cypherpunks will eventually find its foothold in the real world.
Note 1: The method of estimating this capital volume is:
a. For government funds and pension funds, the countries and regions currently allowing Bit currency investment are selected, and 2% is chosen as the investment proportion, as well as the different CAGR of each country and region for next year's growth rate, such as 8.9% for the US and 4.22% for the UK, and an average of 3% for the Nordic countries.
b. For listed company strategic reserve funds, the cash assets (market capitalization multiplied by 5%, with Microsoft's ratio being 9.5%) of the major stock markets (US, Germany, Japan, UK, South Korea, Hong Kong, Singapore, India, Brazil, Australia, Canada, Taiwan) are used for calculation, multiplied by the growth factor (calculated to be 9.68% CAGR for the global stock market over the past decade) and the investment proportion of 10%.
c. For private companies, the same calculation is performed in sync with the currently disclosed ratio of 90% to publicly listed companies.
d. For the wealth management industry, based on surveys by Morgan Stanley, Capgemini, Accenture and others, 71% of high-net-worth individuals have already invested in Bit currency, and the remaining untapped high-net-worth individual wealth is multiplied by the growth factor of 4.5% and the investment proportion of 5% for the estimate.
*The content mentioned in this article is only for market observation and trend analysis, and should not be regarded as specific investment advice.
