Ignorable things in the market will turn out to be determinants.
At four in the morning, bitcoin price plunged as much as 15%, well, of course, it increased first. The market was shocked and confused by the price fluctuation, will it fall back or will it continue to fluctuate?
After Facebook issued white paper of Libra stable coin on 18th June, the whole world was excited, and Federal Reserve Chairman Jerome Powell commented about it during a news release.
He said Facebook spoke to the central bank about the issue of digital currency called Libra,
“Facebook, I believe, has made quite broad rounds around the world with regulators, supervisors and lots of people to discuss their plans and that certainly includes us,” Powell said.
“There are potential benefits here; there are also potential risks, particularly of a currency that could potentially have large application,” Powell said.
“We will wind up having quite high expectations from a safety and soundness and regulatory standpoint if they do decide to move forward with something.”
Then we see the news that The United States House Committee on Financial Services hopes to stop Facebook from issuing Libra encrypted currency network — at least temporarily. Negative attitudes by U.S government is obvious, and it proved my predictions: Libra benchmarks U.S dollar at this stage, instead of CNY. When Libra changes its role from consortium chain to decentralized stable coin, USDT will be the next competitor.
The logic behind is supervision, instead of technology, as Pony Ma said. Any stable coins without supervision are against the U.S dollar by nature. Facebook targets inclusive finance group without no financial accounts, such as African countries.
CNY extends its influence of internationalization to the global capital trade and infrastructure development through the national strategy of One Belt One Road. 12 countries in ASEAN, 8 countries in West Asia, 8 countries in South Asia, 5 countries in mid-Asia, 7 countries of CIS, 18 countries in mid-east Europe, and several African countries have participated the coalition. In the long term, CNY and Libra will not overlap with each other.
The competition stays within the incremental market — a new world of post-U. S dollar hegemony.
The core of the consortium chain is “enterprise supernodes”, who receive the greatest benefits under the existing U.S law and regulations. Supporters and opponents are still focusing on the idea of Libra stable coin, when it’s issued, the news such as “enterprise supernodes” face supervision will be prevalent. The key to survival is, however, whether Libra will be decentralized.
Bitcoin price surge is no news. However, gold price skyrockets at the same time, reaching 1439.21 USD/ounce as top price and surpassed the peak price in May 2013. The decline of USD and tension between the U.S and Iran stimulated the gold price. Analysts believe that the bull market of gold has initiated, a great opportunity to buy in when the increase first stops.
The gold price vitalizes the domestic gold market. As reported by CCTV, the sales volume of the most valuable bullion in Caibai market — the largest gold and jewelry market in Beijing — accounts for more than 4–5 times than usual. Even the other gold franchise in Beijing is out of stock.
I noticed that almost everyone was discussing the reason behind Bitcoin surge in communities days ago. An important viewpoint is that, on the 24th, U.S government announced sanction on Iranian Prime Minister Adel Abdul-Mahdi and institutions under his leadership. U.S Secretary of the Treasury Steven Mnuchin also announced the sanction of the foreign minister of Iran Mohammad Javad Zarif. On 25th, Iranian President Hassan Rouhani claimed through video call that the U.S new sanction on Iran has proved their no intention to negotiate. While proposing for negotiation, the U.S government implemented the sanction against the foreign minister of Iran. It’s a lie.
The increasing geopolitical risk, the tension between U.S and Iran, and the global trade issue formed the phenomena of bitcoin and gold price surge.
Let’s review what happened in the bitcoin market in recent week. On 18th, the news of Facebook Libra led to the decrease of bitcoin price, a challenge regarded by many of bitcoin. But in fact, Libra does not benchmark Bitcoin. The next day, bitcoin price rebounded unstoppingly in the following days.
What news in the market resulted in an unexpected price increase?
The financial world runs similar to Jianghu in Wuxia stories, as the world always turns on small hinges. People learn to see the logic behind all phenomena. Is Facebook gonna issue Libra soon? At least not prior to the end of 2019.
When will the U.S start the war with Iran instead of threatening each other? As shown in the latest U.S public opinion poll, less than 1/4 of U.S citizens support the war against Iran. The pain remained from 10 years fight with Iraq left little intention into the next war. In addition, the Iranian military is totally different from the civil-military of Iraq. Russia and China also support Iran behind, so I guess President Trump needs to reconsider his military strategies.
Two seemingly irrelevant news attracted public eyes: first, on the 18th, U.S president Trump made a call to Chinese president Xi, market emotions were stimulated. The next day A-share increased by 2.3%. Second, the Federal Open Market Committee announced to keep benchmark interest rate unchanged at the target range of 2.25% — 2.5%, and mentioned to react to the spreading economic uncertainty, the government will adopt “appropriate policies” to ensure economic growth.
After the scheduled monetary policy meeting, Federal Reserve announced that the information shown since this May tells that U.S career market keeps its growth, economic activities are stable, and household spending increase is more than early this year. However, the growth of fixed investment of enterprises is lowering down; the overall inflation rate in December and the core inflation rate excluding energy and food price is lower than 2%.
It’s the first time this year FOMC did not increase the interest rate and kept it remain instead. To see stronger market emotions, the only choice is to lower the interest rate in July. At midnight on Monday, President Trump tweeted, “Think of what it could have been if the Fed had gotten it right. Thousands of points higher on the Dow, and GDP in the 4’s or even 5’s. Now they stick, like a stubborn child, when we need rates cuts, & easing, to make up for what other countries are doing against us. Blew it!”
The expected interest rate cut in July by FOMC is the core reason behind bitcoin surge.
People might not understand, why cut interest rate? As we know, the central bank adjusts the interest rate to change liquidity. When the interest rate is cut, deposits will decrease, and money will transfer from banks to investment or consumption, and increase liquidity in the capital market. In all, interest rate cuts will attract more capital in the investment market, with an increased market value of investment products.
In 2019 we have witnessed the changing world situation: U.S economy is declining. That is to say, people do not tend to invest in U.S stocks with more cash flow in hand.
This month, U.S Department of Justice is preparing for an anti-monopoly investigation into Google, Facebook, Apple and Amazon for antitrust practices. As the news released, the stock price fell in succession. Supervision on technology giants is the unavoidable trend, negative news for U.S Internet giants. Currently, FAANGM stock percentage of S&P 500 has reached its peak as during the 2000 Internet bubble.
Through history, we can tell that when the U.S government starts to supervise high-tech companies, it might be the prelude of the collapse of the U.S stock market. As in 2000, the crash of Internet stock prices followed the government anti-monopoly investigation into Microsoft.
So, the true intention of Facebook to issue Libra is pretty clear. Inclusive finance is just an excuse. Mark Zuckerberg is preparing an alternative way for himself via blockchain.
The Chinese economy in Q1 had a powerful “rebound”, although it dropped back in Q2. As I mentioned in <an article to understand 2019 major events>, the Chinese economy has already reached the bottom, and it will continue to fluctuate in the long term. As predicted by an economic circle, China entered a declining stage earlier than the U.S, and it will rebound earlier.
According to statistics, the U.S China trade war will lead to a 0.5% fall on U.S GDP by in 2019, and 0.5% fall on China GDP. However, U.S estimates a 1.5% increase of GDP in 2019, which means the decrease accounts for 1/3 of its total value. While China expects a 6.5% increase, still capable of keeping a 6% increase with that decline. By 2020, the situation will change. U.S economy will continue to keep a low growing pace, while the Chinese economy will revive quickly.
The U.S will witness the consequence of conflicts on the stock market it created, especially with China. U.S stock market will be more fragile to the upcoming economic recession. By contrast, China is better-prepared for the trade war. The rise of high-tech in China during the weakening of U.S technology stocks offers a good opportunity for sci-techy innovation board (STIB) to be launched in June.
The FOMC interest rate cut demonstrated the overall decline of the world economy except for China, The world might witness the “wave of lowering interest rate”. Thus, a large amount of capital will flow into the market. Guess what will be the most profitable investment product other than CNY? I believe bitcoin is the only answer.
Back to the topic of the article, why the title is <Why Bitcoin has not plunged yet>? Since when the expectation is settled, good news will become bad news. Let’s see when to buy bitcoin is the most profitable?
Back to the key events this week. Ethereum China Shenzhen will be held this weekend, will it affect the rise of ETH price? The other key news is the G20 summit to be held in Japan this Friday. The same as the G20 Summit in Argentina, world capital market is expecting the outcome of the summit. Although held in merely half a year later, the world situation and rule of the game is both changing.
It is estimated that the consensus to be reached between China and the U.S will be as follows: the U.S will keep the existing tariff on Chinese commodities, and continue the negotiation. On the 18th, two national leaders spoke to each other, and the event will result in no further influence on the bitcoin price. The future trend of the market price will mainly depend on economic fundamentals and policies. Whether Bitcoin and ETH price will reach the short-term top and fall back, or continue to surge, depends on market signals.
At 17.00pm yesterday, Federal Reserve spokesman announced that the negotiation between China and U.S has gone through 90%, which led to the rise of the financial market. In the meantime, we need to pay attention to the time of price fall — 04.00 am today, after the closure of eastern America stock market. Why at this time? Since the next day is the G20 summit.
The market has shown a clear attitude towards the negotiation. In normal circumstances, both U.S stock market and A-Share should embrace the bull market for a period of time. By contrast, the hedging tool such as national debts of the U.S and gold should fall. The rule also applies to bitcoin. Retail investors’ attention towards bitcoin only reached 1/6 as compared to the bull market in 2017, far from the FOMO effect. The surge in the first of the year mainly resulted from the participation of traditional financial institutions.
Bitcoin futures need stock for sale. The surge mainly comes from a capital market of all nations, especially the capital giants in Wall Street.
Therefore, bitcoin is closely connected with the global financial market. As mentioned previously, U.S stock lack enough power to rise, while high-tech stocks will plunge anytime. After the market emotions are digested, will capital flow back to the bitcoin market? We will soon get the answer in the next 48 hours. Whether 14,000 USD was its top price, the answer will be soon revealed.
In the following month, we need to focus on two information. First is the United States House Committee on Financial Services’ hearing on Facebook Libra. The notice came from the committee chair, house member Maxine Moore Waters. She called for Facebook to halt cryptocurrency plans until Congress and regulators have had a chance to investigate potential risks. G7 established a special group to discuss the supervision and regulation of Libra and urged European Central Bank board member Benoit Coeure to regulate bitcoin to avoid risks, such as money laundering. I believe Facebook will be the key issue to follow in July summit.
After all, the governor of French central bank-sovereign currencies once mentioned: It is without a doubt that Libra is impossible to become one of the sovereign currencies.
On the other hand, the market is expecting the final decision of the Federal government whether to cut the interest rate on the 1st of August. Whatever the decision is, market expectations are already cashed out.
This is the best chance to be on board.
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