What’s the future of Bitcoin and the logic behind
Those who see the logic behind the power of market will earn 6 times more than others. But how?
We have acknowledged that the U.S Commodity Futures Trading Commission (CFTC) has turned on green light for LedgerX — the first Future to settle in Bitcoin.
For those who have not heard of LedgerX, the startup raised $1.5m in seed funding from a group that included Google Ventures and Lightspeed Venture Partners. The round B funding of Ledger Holdings was led by Miami International Holdings and Huiyin Blockchain Venture Investments, the startup announced this morning. MIH is the parent company of Miami International Securities Exchange, LLC, an options exchange operator. Its trading volume ranks prior to the national trading of Japan and Australia. Huiyin Blockchain Venture is a subsidiary of investment conglomerate Huiyin Group.
Of course, people care the most about the news which future trading platform of Bitcoin Bakkt announced the first Bitcoin futures test as of July 2019. It indicates that bitcoin will be traded as gold.
I received lots of responses from the previous article <why Bitcoin has not plunged yet>, since I analyzed the reason behind bitcoin price fluctuation. Short after the article was put online, bitcoin price plunged. In addition, I also talked about the key news and events of crypto market we should focus on in July. While in today’s article, we will talk about — what happened in gold market?
Recently, iron ore futures increased by 50%, even CCTV opened a special column to analyze the hot topic. In the meantime, apple futures’ strong fluctuation evoked the attention from monetary policy makers. In the meantime, however, gold futures increased for more than half a year, and reached the new top out of previous 6 years.
Gold market price surged since the beginning of this year. For instance, COMEX gold increased by 10%, and reached 1,442 USD/ounce on the 25th June. Then the price fell back for several days, finally putting an end to a “5-day-increase”. On the other hand, the largest open interest for gold ETF has kept its growth since June.
Do you feel something familiar? The market trend of gold is exactly the same as Bitcoin, even the statistics behind the story. Although Bakkt has not opened ETF yet, but Bitcoin futures needs to prepare in advance.
In previous article I also mentioned that, the next decade is located at the recession period according to Kondratiev wave, and gold price will systematically increase. Currently gold price is influenced by the following factors: global monetary policy, interest rate by U.S & EU central banks, supply, production & consumption, systematic risks of global economy, global inflation and speculation. Among all the factors, monetary policy and interest rate are the key influencers to bitcoin price.
The view point which says POW mining halving cycle determines bitcoin price is not true. We can just say it is relevant, since an everyone-known or unchanged genereal “truth” cannot predict the changing market. We had a vivid example to tell — almost all miners or mining pools failed to seize the opportunity of bitcoin surge.
Whatever market it is, game theory mechanism is the key. Market is like god, since we humans make mistakes but it does not. If you find it’s difficult to figure out the correct logic, either your perception is mistaken, or the information you get is asymmetrical.
U.S FOMC interest rate cut news pushed the price increase of gold and bitcoin. I will not spend much time on whether gold price has reached the top. But I hope everyone can remember that, for whatever reason, it’s vital to understand the relationship between interest rate adjustment and currency price.
The central bank’s median target for the federal funds rate is still 2.4% for 2019, and 2.1% and 2.4% respectively for 2020 and 2021, lower than the previous target of 2.6%. If U.S Federal Reserve decides to cut interest rate on the 1st August, the central banks around the world will start a new round of QE. Then where do you think the money will flow? Is it another “huge capital” control effect or forced “consensus” by policies?
When uncertainty is finally confirmed, bullish market of gold and bitcoin begins.
In fact, the recent bitcoin surge has separated from the independent digital asset market. The reason is related with silver price — another key influence which is easy to ignore. Since silver price did not follow closely with the gold price surge, gold/silver ratio has reached its top beyond 91 since 26 years ago.
During the past 10 decades, gold/silver ratio remained a stable range between 100 to 15. The top and bottom difference rate was 6.66.
Let’s look at the second lowest point of 15.67 in 1968 and the lowest point of 15.13 in 1980. If you have read previous article <an article to understand 2019 major events>, you should have understood the logic behind Kondratiev wave.
In the book <Wealth and Democracy: A Political History of the American Rich> by Kevin Phillips, he mentioned 1966–1982 is the implicit recession period. An obvious phenomenon is that the stock market crash is close to 1929 recession. U.S experienced the most severe inflation in peacetime, as commodity price was three times more expensive, and middle class earned 10% less income. The gap between the rich and poor is thus further increased. <Harvard Business Review> implemented a research among readers. The result demonstrated that more than 3/4 interviewees showed pessimistic attitudes towards economy. In fact, Kondratiev wave predicted two periods–recession period from 1966–1974, and depression from 1973–1982.
Some may have realized an interesting detail. It has been proved that the increase of gold and silver price as risk-avoidance channel coincides with recession and the depression period. In previous Kondratiev wave, gold price increased prior to the economic recession period due to war, followed by the rise of silver price. While two years after the recession, silver increased more than gold price, which confirmed the turning point of economy.
Between 1973 and 1975, gold/silver ratio reached 45, then it returned to the bottom of 15.13 in 1980. What happened during that period?
In fact, 1975 witnessed the lowest point of U.S stock. Dow Jones Index closed above 1,000 on the 14th Nov 1972, then fell back to 550 in 1975, and it climbed back to 1,000 by the end of 1976. However, since U.S economy had not recovered yet, the index continued to decline. The index kept fluctuation from 800–1000 between 1977–1982.
In other words, from 1968–1973, as a major risk avoidance channel, gold price increased during economic instability or severe uncertainty. Silver price followed the gold trend, with a relatively smaller increase. Until when U.S stock collapsed in 1975 did recession period officially start, and silver price increased even more than gold. It finally reached the peak price two years prior to the recession period.
The increase of gold price is not the real sign of bull market of risk-avoidance assets, but silver is.
For what reason between 1980–1990, the gold/silver ratio climbed back to the peak at 100.7? 1982–1991 is at the recover cycle of Kondratiev wave. We can understand that gold and silver both declined, but as the inferior risk-avoidance tool, silver price declined faster than gold, until reaching the maximum Silver/Gold difference ratio .
If the current increase of bitcoin and gold will initiate the next bull market, then the key for bitcoin trend is to figure out what is the “new silver”? If bitcoin is the “digital gold”, then what is the “digital silver”? As I have explained in <A decade bet with Wang Sicong, what is the future of bitcoin>, there’s only one answer — ETH.
Many say that Litecoin or EOS is the digital silver, or EOS is the substitute of ETH. As I mentioned previously, Litecoin is merely a “fake coin”, or a “concept coin” without real value. While EOS needs further development until being fully decentralized or with a open-source ecology. Otherwise, the two digital coins will be no more than a footnote in history.
In <an article to understand 2019 major events>, I listed the history of currency and expressed my opinion that the conflict between United Kingdom in Ming Dynasty originates from the competition between silver and gold standard. Even before gold standard was put into operation in United Kingdom, silver was the main currency. Before that, silver had worked as “economic operation system” throughout thousand years in human history, just as Ethereum which works as a decentralized “global computer”.
How to prove it?
The top ETH/BTC price ratio was 0.1515. If we exclude the bottom value at 0.0073 resulted from the price surge and slump in 2016, or before the market reached a “stable consensus”, the lowest ETH/BTC price ratio was actually 0.0239. The difference ratio was at 6.34, which perfectly corresponded with the silver/gold difference rate.
While the current ETH price reaches the bottom of ETH/BTC ratio.
Let’s turn to look at Litecoin/BTC price ratio. Excluding the sudden price concussion, the top ratio was 0.0529, and the bottom ratio was 0.00275. The difference rate was 19.269. Since Litecoin was listed on crypto exchange in June 2013, it has barely formed a stable highest and lowest point. By contrast, silver and gold had a stable difference rate, since it has “consensus”.
Let’s check EOS/BTC price ratio. After excluding the price concussion, the top price ratio is 0.00243, the bottom is 0.0000815, and the deviation rate is 29.8, deviating far from silver/gold difference rate. As still in early stage, we haven’t seen a stable difference rate of EOS/BTC.
I suggest you to look at the history data, since human history is repetitive. Through the past, we learn how the future goes. This is the reason why the total volume of ETH can approach 100 million. A stable ETH/BTC price ratio is impossible without a significant volume to support it. Otherwise, ETH cannot become the undoubted “digital silver”.
The story of silver and gold in offline world was replicated in blockchain world. The process to form human consensus is time-consuming.
Let’s look at crypto market. As “digital gold”, bitcoin price surged independently from digital currency market, and ETH as “digital silver” seems to increase with the market trend, but in fact it followed the Bitcoin increase, A lowest stable ETH/BTC difference was formed at 0.0239. In other words, BTC price is 41.84 times more than ETH. At the beginning of recession period, as shown in 1966 Kondratiev wave, gold price surge was followed by silver price, until when the gold/silver difference rate reached its lowest at 15.67 in 1968.
Let’s have a guess. Within two years, when Ethereum finishes POS upgrade in 2021, will ETH/BTC price ratio reach its highest level?
According to the gold/silver difference rate at 6.66, and the lowest rate of ETH/BTC at 0.0239, the top difference rate of ETH/BTC might reach 0.159. In other words, if you plan to buy gold or silver at its lowest price, I suggest you to spend the same amount to purchase ETH. Believe me, in the next two years, ETH will exceed the BTC surge by 6.3 times.
As a short-term logic, the current bitcoin price might have reached its bottom. Bitcoin price increased from the lowest at 162 USD in bear market since 17th August 2015, to the short-term highest of 785.3 USD on the 13th June 2016. It took ten month to reach the temporary peak, almost 67% of the highest 1,175 USD in 2013.
This time Bitcoin first touched the bottom of 3,215 USD in bear market on the 17th Dec 2018, then it continued to rise till reaching the highest of 13,784 USD on 25th June. It took bitcoin 6 months to reach 67% of 2017 peak price at 19,891 USD. The rapid increase of current bull market is 0.6 times faster than before.
The previous turning point from bear to bull market was on 8th August, 2016. The market price adjusted 30% in two months. Bitcoin used 5 months to increase from 564 USD to almost reach 1,175 USD, as its peak on 2nd Jan 2017.
Let’s have a guess, whether the current bitcoin price adjustment will finish in 30 days, around 1st August when FOMC announces the interest rate policy? Within four months, whether bitcoin will return to the previous top of 19,891 in Oct?
Back to my earliest point of view, any bitcoin price fall back offers a chance for you to get on board. If you hope for a better life, you should all-in bitcoin. If you read my article and understand crypto market, you should all-in ETH.
If the above is not enough for you, spend 80% of cash flow to buy ETH, and spend 20% to buy HYN, and your life will be totally different.
We should pursue our dream, and believe one day it may come true.