The first anniversary of 312: the great changes in the world of crypto
2020 is a special year. In March 2020, it is a "black March" that can go down in history. Even Warren Buffett is "screaming for a long time". In a sense, March 2020 is a very important watershed in the global economic and financial changes.
Under the background that the global financial system is almost "out of control", Bitcoin has led DeFi to rise suddenly, which has triggered a financial system competition of "centralization and decentralization" and "deconstruction and reconstruction".
March 12th is the most representative day in "Black March". On this day last year, the Dow closed down 9.99%, the biggest one-day drop since October 1987. The Dow, Nasdaq and S&P 500 all fell into a technical bear market. Bitcoin plunged 38.81% from around $8,000, and then dropped to a minimum of $3,858 the next day.
In a blink of an eye, "312" in 2021 is coming, but in this short period of time, the crypto world has undergone great changes. Will history repeat itself? Do currency holders need to guard against the risks of black swan again? Are the fundamentals of cryptofinance different? This paper will review and sort out the important changes in the crypto market in the past year, reveal the deep reasons for its development and rise, and try to answer these three questions.
- Bitcoin under the macro change
In 2020, there were many major events in the global financial market: in early February 2020, the COVID-19 epidemic broke out on a global scale. On March 2, the Federal Reserve cut interest rates by 50 basis points urgently, and then the world ushered in the central bank's "interest rate cut tide". On March 6, OPEC and Russia talked about the collapse of production reduction cooperation. Saudi Arabia launched an oil price war. Coupled with the impact of the epidemic, the international crude oil futures price fell to a negative value. For a time, "barrels are more expensive than oil". US stocks fell four times in two weeks, and Buffett couldn't help but sigh. "I lived 89 years old and have never seen such a scene".
Affected by the collapse of US stocks, dozens of countries around the world issued restrictions on short selling ...
Bitcoin reversed itself during this period. Bitcoin first experienced a "312 plunge", and its price was halved in two days. On March 23rd, the Federal Reserve launched a wide range of unlimited quantitative easing measures on the basis of its earlier $700 billion bond purchase plan. Subsequently, Bitcoin and global assets began to gradually stabilize and rebound, and even hit new highs one after another. The following figure shows the trend of bitcoin price increase in 2020 and the major events related to it. Readers can clearly see the relationship between bitcoin price and "news".
Grayscale's fourth quarter earnings report data
Entering the new year, the world economy seems to remain in the haze of 2020. Although the vaccine has been gradually popularized, the virus strains are constantly mutating, and the COVID-19 epidemic is still not completely contained. It will take some time for the world economy to recover. On March 7, 2021, the U.S Senate passed the amendment of the $1.9 trillion COVID-19 bailout bill, and a round of big water release was about to come. Recently, Federal Reserve Chairman Powell also said "stand by": The Fed will not raise interest rates until the inflation target of 2% is achieved and full employment is restored.
The stock market is no longer a barometer of economy, but a barometer of liquidity since the Federal Reserve released water. Looking at the global financial assets, we can see bubbles everywhere. Under such flooding, we will undoubtedly usher in the rise of all kinds of new assets. According to the data of Glassnode, an crypto research platform, in April 2020, under the background of unprecedented inflation and loose global monetary policy, the number of new investors pouring into the bitcoin market is increasing parabolically. If we can infer from this, the performance of Bitcoin is still worth looking forward to under the flooding of US$ 1.9 trillion in 2021.
Glassnode data
Turning the timeline back to January 3, 2009, Satoshi Nakamoto wrote "The Times 03/Jan/2009 Chancellers on Brink of Second White House for Banks" in the Bitcoin Creation Block.
On March 7, 2021, the US Senate passed the amendment of the $1.9 trillion COVID-19 bailout bill, and the House vote will be held this week. Thomas Jefferson, one of the three founders of the United States, once said: "In every country that issues banknotes, banknotes may be abused, abused once, now and forever." Under the background that the macro financial system is getting deeper and deeper into quagmire, deflationary assets like Bitcoin are getting more and more popular. Perhaps Bitcoin will become a safe haven when many asset bubbles burst.
- Competition between Bitcoin and Gold
Bitcoin was called "digital gold" a long time ago, but it was difficult to compare BTC with gold at that time. Before August, 2020, the trend of Bitcoin had a relatively strong correlation with gold, but it seems that Bitcoin and gold have started a competition since then.
BTC has made great strides upward, while gold has fallen all the way.After gold price broke through 2000 US dollars in August 2020, it started to fall all the way. At present, the gold price remains around 1700 US dollars.In August 2020, BTC reached a peak of US $12448, and then bitcoin continued to rise sharply after a brief adjustment. At present, BTC stands at $50000 again, with a market value of more than US $trillion.
According to the latest report from Goldman SachsAs of March 4, 2021, bitcoin's return this year is about 70%, about twice that of the 35% return in the energy industry that follows.In addition, the report charts show that bitcoin has outperformed all major traditional asset classes so far this year.
Goldman Sachs report data
The key to the separation of gold and bitcoin is that institutional investors begin to reduce their holdings of gold and increase their holdings in bitcoin.Grayscale had $2 billion in assets under management at the beginning of the year and $20.2 billion by the end of 2020.The buyers of grayscale trust products are mainly crypto asset lending companies, hedge funds, mutual funds, private wealth companies, consulting firms, family offices, etc.
Grayscale's fourth quarter earnings report data
On November 9, 2020,JPMorgan Chase in a reportBitcoin is eroding demand for gold ETFs in the market, he said.Institutional investors, such as family offices, see bitcoin as a digital alternative to gold, and their demand for grayscale's bitcoin trust exceeds that of all gold ETFs combined.
JP Morgan reports data
The March report of "outlook on the crypto of blogberg"In the report, according to the report, the volatility of bitcoin will continue to decline, while that of most other assets will increase.When it comes to 2021, we don't see anything to stop bitcoin from replacing "old-fashioned" gold.It may be only a matter of time before bitcoin replaces gold.The following chart shows the comparison between the volatility of gold bitcoin index and the standard & Poor's 500 index
Data from the blog intelligence
According to the analysis of Bloomberg intelligence, the 260 day volatility of the gold bitcoin 75 / 25 index has reached the lowest level, and it is 20% lower than the same risk measure of the standard & Poor's 500 index. Similar situations have occurred in early 2016.In general, the 260 day correlation index between bitcoin and the stock market is usually negative, but it reached 0.34 in early March, the highest so far.Gold bitcoin index prices are expected to receive more sustained support as the Federal Reserve launches quantitative easing to boost GDP.
Will bitcoin eventually replace gold?Gold has existed for thousands of years, and its historical position in the traditional society has indeed been unable to shake.However, human society is undergoing a great migration of the Internet, and human beings are entering the digital age.Many of our lifestyles have actually begun to migrate to the Internet.New technologies such as artificial intelligence, Internet of things, cloud computing and blockchain are developing rapidly and reshaping the society rapidly.In this process, big data has become a new means of production for human beings.
Decentralized collaboration is changing the original production relationship and mode of human beings. Bitcoin, as a primary asset in the digital era, is naturally more suitable to serve as a value reserve than gold.In the development of decentralized Finance (defi), BTC naturally plays a role of value reserve.The figure below shows the change of lock amount of BTC in defi
- Oklink data
In the development process of defi, BTC is closely connected with it.With the maturity of blockchain technology, BTC will also be applied to more scenarios to strengthen its value reserve function.With the increasing volatility of BTC, it will be recognized by more institutions and even countries.Grayscale points out in its fourth quarter 2020 report: the latest guidance from the office of monetary supervision (OCC) indicates that bank of America may consider including digital currency in its settlement infrastructure.In 2021, we may see the beginning of digital currency integration into the National Bank infrastructure.
- The rise of defi impacts the original financial system
Blockchain technology is most closely related to the financial field.Bitshare in 2014 and makerdao in 2017 are all early defo explorers. however, before 2020, the development of defi is really slow.It's not until 2020 that there will be a big explosion for defi.
In a more detailed view, until March 2020, DFI was not favored by the mainstream crypto market. at that time, the halving of bitcoin every four years was the focus of more attention.However, after the "312" crash, the global financial market and economic fundamentals "derailed", the market had a huge concern about the financial sector, financial innovation became a new outlet, and DFI ushered in a rare period of development opportunities.
We believe that after the "312" slump in 2020, the development of defi can be roughly divided into four periods:
Debank data
(1). Defi adjustment period (roughly in March April).The collapse of the crypto market broke the original rhythm of the development of defi. At this stage, some difi leaders entered the adjustment period and basically recovered to before the collapse.Among them, the representative is the Oracle machine leader link.
(2). Fifi innovation growth period (mainly in May August).There are many financial innovations in the field of defi, which promotes the rapid growth of defi.In mid April, compound, the leader of decentralized lending, went online to manage the token comp. Both sides of the loan can obtain the governance token by providing loan assets and borrowed assets.
This innovation greatly stimulates the enthusiasm of the market to participate, and at the same time, it introduces a large number of idle funds for defi.In the same period, uniswap, a decentralized trading platform, has sprung up. Its constant product model allows users to exchange tokens directly in the exchange pool, which changes the previous order book transaction mode, reduces the market making threshold, and further provides an application scenario for the funds in compound (trading and earning market making fees, etc.).Then, year. Finance, a financial platform, was born, which uses the machine gun pool and other functions developed by smart contracts to further maximize the profits of users' idle funds.These three leaders initially set up the infrastructure template of defi, and then more projects were developed on this basis, which led to the prosperity of defi ecology.
(3). Defoaming period of defi (roughly in September November).Before defi, there were many financial models such as mining currency and trading mining, but most of them entered the death spiral after the short-term prosperity due to a large number of speculators arbitrage.The same is true for defi at this stage, with most of its leading companies plummeting.It is worth mentioning that the amount of defi lock up did not decrease greatly at this stage. In addition, the price of the head of the defi company began to rebound and the price stabilized.
(4). DeFi outbreak period (from December). After the financial innovation promotes the substantial growth, DeFi does have adjustment demand on the one hand, and more importantly, it is limited by the bottleneck of blockchain technology. Among them, the most criticized is that the Gas fee is too high, and the promotion speed of Ethereum 2.0 is relatively slow. However, by December 2020, the Layer 2 scheme will become a lifeline to save DeFi. For example, Luyin, one of the leaders of Layer 2, became another Google cooperation project after Chainlink and Hashgraph, and became the first zkRollup application case recommended by Google. Road printing is based on the decentralized transaction protocol of zkRollup, which improves the throughput by 1000 times and reduces the cost by hundreds of times on the premise of ensuring the security. The progress of this kind of technical scheme has brought great confidence to the market. Subsequently, Synthetix, Sushi and other projects have announced their entry into Layer 2, and Defi+Rollup solution has become a market hope and a hot spot. At the same time, the expansion of public chains Cardano, Near, Solona and cross-chain leader Boca have also made efforts to rekindle market hope. DeFi started to March into CeFi from two dimensions of financial innovation and technological innovation, and constantly attacked cities and occupied land.
The picture above shows the top ten currencies in the crypto market at present. Among the top ten currencies, UNI and LINK belong to DeFi leader. ADA and Poca are high-performance expansion and cross-chain faucets. The public chain of BSC and other platforms can be classified as Ethereum side chain, which mainly benefits from undertaking Ethereum spillover value. This also shows the important characteristics of this bull market from the side: DeFi's financial innovation, expansion and other technological innovations are undoubtedly the main focus of capital and the recognized development direction.
Before 2020, DeFi is not enough. After 2020, DeFi has already impacted the original financial system. In this process, the development of DeFi has also aroused the concern and worry of the government and regulatory agencies.
On December 17, 2020, CFTC published an introductory book about cryptocurrency industry, which stated that DeFi and cryptocurrency governance had become one of the topics CFTC paid attention to in the field of digital assets. Heath Tarbert, chairman of CFTC in the United States, said bluntly that the regulation in the United States lags behind the development of cryptocurrency and blockchain.
On the evening of January 4, 2021, OCC, the largest banking regulator in the United States, issued a document in official website, announcing that American banks were allowed to use public blockchain and dollar stable currency as the settlement infrastructure in the US financial system.
In January, 2021, FinCEN, an institution affiliated to the US Treasury Department, proposed that banks and money service enterprises should record the transactions of private cryptocurrency wallets. As the application of DeFi mainly relies on wallet as the entrance, FinCEN's move is likely to try to supervise DeFi.
American tax season is coming. Most Americans believe that the IRS does not provide enough guidance to taxpayers on how to report their crypto income, especially the report on DeFi innovation. On March 9, 2021, the Internal Revenue Service (IRS) launched an anti-tax fraud action called "Operation Hidden Treasure", which was devoted to tracking unreported cryptocurrency transactions, so as to investigate the responsibility of potential tax evaders.
For regulators, DeFi has developed too fast, which has greatly changed the original regulatory paradigm. In the field of DeFi, in fact, many concepts are still lack of clear definition, such as how to define its token asset attributes, and how to collect taxes on pledge income. If these definitions are still lacking, there are many problems in regulation and tax collection. In addition, the highly decentralized and global circulation of encrypted assets makes the supervision more difficult.
Essentially, the development of DeFi was born under the crisis of the collapse of the global financial system, and the development of DeFi is the result of the mutual promotion of financial innovation and technological innovation. This is an important development direction in the digital age and a financial force that no country can ignore and stop.
However, how to use DeFi for the government and how to supervise it is an urgent problem that government regulators should face directly at present, and it is also the beginning of DeFi's reshaping of the traditional financial system.
Prospect
Due to the COVID-19 outbreak, people began to accept and adapt to the life style of no contact or less contact for more than a year. Although it caused a lot of inconvenience, it became the catalyst of the digitalization process and greatly improved the speed of the digitalization process. For example, in China, even the elderly who can't use smart phones have to start learning how to use smart phones to scan code for registration. It can be said that the epidemic has made the traditional lifestyle and digital life parallel to each other try to merge.
Although the global economy as a whole has suffered heavy losses, industries such as artificial intelligence, 5G, Internet of Things and blockchain have developed rapidly. The fourth industrial revolution, with data as an important means of production, has risen rapidly, and the great migration of human beings to the Internet has never been so mighty.
Grayscale is at"Great wealth transfer promotes BTC to become the mainstream investment target"The report pointed out that the digital age has arrived, and in the next 25 years, 68 trillion dollars of wealth will be transferred to the younger generation who are inclined to invest in digital cash, which is a huge opportunity for Bitcoin.
The future has come. Even if "312" surprises the black swan again, please believe that Bitcoin is no longer the former Bitcoin.