China’s SAFE Tells You The Future Direction Of Bitcoin
By Hyperion SG on Altcoin Academy
The State Administration of Foreign Affairs announced its decision on September 10 to cancel the quota limit for qualified foreign institutional investors (QFII) and RMB qualified foreign institutional investors (RQFII), with the approval of the State Council. Before that, China has never opened the domestic market to foreign investors.
According to media analysis, the proportion of foreign investment in China will eventually reach 20%-30%. In addition, the data from the central bank tells that the current proportion is less than 2.5%. In the future, there will be 8–12 x increase in foreign investment.
The opening of China’s financial market is the foreplay of the RMB transgression in the future.
There’s a saying that to know the current trend of investment, just look at how the rich people spend their money. Hong Kong’s large-scale quantitative investment private equity fund received several entrusted investment inquiries from large European and American offices on the day when the decision was announced. The sensitivity of market trend is not achieved overnight but based on a long-term accumulation.
These rich European families have already spotted the potential investment opportunities since the A-shares reached 2440 point last year. Since A-shares and RMB bonds have been included in the international mainstream indexes such as MSCI, FTSE Russell, S&P Dow Jones, Bloomberg, and Barclays, and the weight of A-share in each Index is steadily increasing; for large capital, the attractiveness of A shares is already much higher than that of US stocks. The QFII and RQFII quota restrictions have been abolished, which means over one trillion foreign capital will enter the A-share and RMB bond markets. These subtle changes in the market are signals of the future market trend.
In fact, overseas markets have rich types of long-term RMB-foreign currency swap OTC transactions, which are available from 1 to 5 years. This means that these European and American families can first stabilize the conversion cost between RMB and US dollars in overseas, then enter China’s A-shares market via RQFII for medium and long-term value investment.
Therefore, as I mentioned in the article “What will happen to the digital currency market in the next three months”, the active depreciation of RMB aims to offer another option for traditional financial capital except from USD. As a result, global capital will gradually flow to the RMB market. When you realize that smart money is buying RMB at its lowest price, how would you lose confidence in the future of the RMB?
I kept telling everyone that past events must happen for a certain reason. From One Belt One Road in the past year to the cancellation of qualified foreign institutional investors (QFII) and RMB qualified foreign institutional investors (RQFII) investment quotas, China has turned its strategies from RMB expansion to concentration. The origin is the traditional wisdom of Tai Chi, the essence of which is mutual involvement.
One Belt One Road Initiative helped under-developed countries to retain their young people, build infrastructure, and complete industrial upgrading with RMB investment supports. In addition, China shared the dividend of growth with all the OBOR alliances with the power of state capital.
At this time, as long as China scraps the restrictions on foreign investment in RMB, there will be a huge wealth effect. From the perspective of the secondary market, it is more likely that RMB price will reach its bottom, while trading volume will be hugely increased. This process will be accompanied by the next global economic crisis triggered by the collapse of the US dollar and US stocks, thus completing the surpass of RMB against the US dollar.
However, it is far from enough. To complete the transgression, a key element is required with the following features: a mature market that traditional funds can rely on, which is in line with European and American trading habits; a large number of mature investors in global fixed income and currency transactions; and post-trade financial service infrastructure to support the core of global asset transactions, such as liquidation and settlement, as well as a mature currency sales channel.
In other words, the spot depth is strong enough, with a reliable futures contract, a mature OTC market, and an active community with monetary consensus.
The answer is this: according to Xinhua News Agency, the Hong Kong Stock Exchange announced on September 11 that it has proposed to the board of directors of the London Stock Exchange Group to merge the HKEX with the London Stock Exchange.
Terms of reference submitted to the board of directors of LSE reflects the value of the total issued and future common stock of 29.6 billion pounds and the corporate value of 31.6 billion pounds. HKEX said it intended to apply for a secondary listing of its shares on the LSE once the deal has gone through, to show the confidence of the HKEX in the UK. The HKEX said that the merging with LSE will be a major strategic opportunity for mutual benefit, and build a leading global financial infrastructure.
So far, I hope you have had a deeper understanding of the RMB depreciation as I mentioned in the previous article. One Belt One Road Initiative was proposed by the state on September 2013, when the RMB/USD exchange rate was only 5.9. China invested RMB in OBOR nations at its highest price. There were still many opposing voices at the beginning. The exchange rate slowly and steadily fluctuated in the following years. The USD/RMB remained at 6.15 until the global economy entered the early stage of recession in 2017. That was the end of prosperity of the real estate industry. In 2018, Trump triggered the Sino-US competition, and RMB initiated a new round of depreciation until it adjusted the exchange rate to 7.18 last month.
While expanding the channels for overseas capital to join the RMB market by opening QFII and RQFII, the USD/RMB exchange rate will continue to fall. During this process, short-term capital will be quickly cleared out. In addition, with the merging of the Hong Kong Stock Exchange and the LSE, RMB will stand firmly within the global market. We will see the bottom price of RMB when the whole process is completed, which is 7.84. This time the strongest wave of the global financial crisis will arrive.
Only the most determined overseas capital will survive the period, and the smartest overseas capital will buy RMB from its bottom price in batches. At the same time, the HKD as the offshore RMB will be closely connected with the global capital market.
When the RMB reaches the bottom price and market rapidly increases, the overseas TD traders will establish a consensus with certainty, while the right side transaction method will cautiously reach its consensus. That’s where the faith starts.
The Hong Kong incident as I mentioned in “the future of Sino-US relations and Bitcoin” is an epitome of how the overseas capital watching the game between RMB and USD. As long as the signal appears, the smart gambler already started the game.
Looking back at the other side of the globe, just last weekend, an MTM tracked by JPMorgan Chase showed that the same indicator of the S&P 500 index reached its maximum positive value on the same day that the MTM of the US stock market reached its maximum negative value. In other words, the performance gap between small and medium-sized companies and large companies in the US stock market is unprecedented.
This divergence indicator only showed twice in the history of US stocks, the first one was on the day before the US stock market crashed in 1973, and the other was on the eve of the February 1999 when technology stock burst out. The current low beta values (low volatility) has already become one of the most popular deals in the U.S due to its high valuation and high macro risk exposure.
Do you think the US stock market will immediately collapse? I believe it is not the right time yet. The uncertainty of US stocks and the accelerated inflow of overseas capital into RMB, A-shares and RMB bonds will strengthen the sentimental preference towards the risks of global financial markets in the next three months.
That is to say, there may be a short-term decline in safe-haven assets, and risk assets such as China’s A-shares will continue to rise.
Bitcoin And Gold Will Deviate Again.
In another article “Your Question: Why Bitcoin Plunged”, I enunciated my point: Bitcoin is a safe-haven asset in the digital currency market, but it is still far from being a safe-haven asset in traditional financial markets. I think that in the next three months, the traditional financial markets will have a preference towards Bitcoin as a safe-haven asset, especially after the opening of the Bakkt exchange.
This follows the logic in the article “the future of Sino-US relations and Bitcoin market”: RMB will finally overtake USD in the spot market, and the big investors of Wall Street aim to grow the incremental network of the machine when the two leaders of the human world are busy competing in the traditional market.
My prediction that the Digital Gold Reserve Act might appear in the United States in 2023 caused a huge controversy. Many people did not understand the reason behind it. Others were asking why they benchmark bitcoin instead of gold? When we review the entire development process of gold 90 years ago, we could figure out that the root is always the same.
The president of the US eight syndicates firstly implemented the nationalization of gold and purchased a large amount of gold at the bottom price through administrative methods. Then the gold price was doubled in the next year, which means the value of the dollar was depreciated by half against gold. By the end of 1934, the US gold reserve was more than doubled. It tells us that the consensus brought about by national administration is always most effective since the nature of human beings remains unchanged.
Afterward, the U.S stored large amounts of gold from other countries with the agreements signed after the war. Having the largest gold deposit in the world, the U.S can increase the price of USD. However, the reason why the U.S failed to permanently manipulate the world market is that all the other nations are losing trustiness and confidence in the US economy, and decided to withdraw the gold deposit.
Throughout years, gold has become an increasingly fragmented market and is therefore difficult for any single authority to control. The other important reason is that the gold production of the U.S is decreasing, as similar to Bitcoin. The mining company is the mining pool. Early large investors tend to have fewer manipulation of the entire gold/digital gold mining pool later.
Bitcoin is the fairest game in the digital currency market. By contrast, the issue of information asymmetry is prevalent in traditional financial markets. In addition, the key thing is that the US government owns the largest amount of bitcoin. The purpose of the Bakkt exchange to hedge the futures is that the bitcoin bookmakers from Wall Street will transmit a large amount of bitcoin into the US trading pool.
If the number of early missing bitcoin is deducted, the total amount of Bitcoin circulated will be estimated to be less than 16 million. If the ingenerated bitcoin after the 4 years of halving period is included, the final amount available for trading will be approx. 13 million. Do you think 4 million bitcoins is enough to manipulate the market?
The US government has held more than 1 million bitcoins, and the Bakkt exchange will own 1 million in the next one to two years. Together with the Digital Gold Reserve Act, the U.S will hold 4 million bitcoins in total. In the traditional stock market, getting hold of 30% of the total circulation is enough to manipulate the market, not to mention in the bitcoin market.
The thing that can finally reach the world’s consensus with a history that can create “hope” for mankind is precious. If I were the leader of Wall Street business syndicates, I would seize this opportunity to rearrange the new rule of global capital.
However, this time, we have a new protagonist — the RMB. The machine network does not serve any individual or country, but rather complete the full circle of self-evolution through technologies. Soon, we will hear the start of the war.
There is only one doubtless thing: any future drop in Bitcoin would be the best chance to change your destiny. Do not withdraw before the dawn.