In the US market, Coinbase, which provides encrypted digital currency trading, will be listed for trading on April 14. Coinbase achieved revenues of US$1.8 billion in the first quarter of 2021, surpassing the US$1.3 billion for the whole of last year. The profit ceiling in the first quarter may reach 800 million US dollars. 56 million registered users, more than 43 million in the previous quarter. With this growth rate, the scale of revenue and profit far exceeds that of existing stock exchanges. Coinbase's main trading product is Bitcoin, which shows how popular the market is for Bitcoin.
In addition to the Coinbase listing factor, other market behaviors also indicate that the market is highly concerned about Bitcoin. Some well-known insurance companies such as Mass Mutual, New York Insurance Company, Liberty Mutual and Starr have begun to jointly develop Bitcoin-based insurance products. Well-known investment banks in the United States have also begun to provide bitcoin-related services. The most radical of these is Morgan Stanley. Morgan Stanley is investing heavily in Bitcoin's market infrastructure, while also providing Bitcoin-related services to its wealth clients. In addition, as of today, 9 applications for the establishment of Bitcoin-based ETFs in the US market have been submitted to the US SEC. These and other developments in the market indicate that the US market is increasingly paying attention to the value of Bitcoin.
In the market's judgments on the various values of Bitcoin, one of them is to regard it as a safe-haven asset. And this view has its logic.
The rapid increase in the price of Bitcoin can be said to have started in March 2020. The monetary policy implemented by the Federal Reserve to rescue the crisis brought about by the epidemic has led to a large increase in the issuance of US dollars. The additional issuance of the U.S. dollar will inevitably bring about the depreciation of the U.S. dollar and the inflated value of all U.S. dollar-priced assets. These assets include real estate and stocks. For institutional investors, they must consider how to deal with the actual depreciation of their own assets brought about by such market development. They began to study alternative assets that can hedge against such market risks. Among the available assets, the safe-haven value of Bitcoin has gradually been recognized by the market. With this increase in recognition, more and more institutions and individuals began to hold Bitcoin. The safe-haven value of Bitcoin is embodied in the following aspects.First of all, Bitcoin was designed as an electronic currency. Its design purpose is to provide a currency solution in addition to the existing legal currency. In its design, the total amount of Bitcoin is certain. This avoids the feature of additional issuance of legal currency. Moreover, the operating mechanism of Bitcoin is automatic operation and is not controlled by any institution or individual. The total amount of Bitcoin must be used and the mechanism for obtaining usage is now automatic. In the past 12 years of development, due to the increasing popularity of Bitcoin transactions, a direct exchange transaction between Bitcoin and legal currency has been formed. Bitcoin can therefore be priced based on various legal currencies. As Bitcoin's use and transaction become more and more popular, it is now becoming a store of value and payment tool. Due to the above characteristics, especially the most basic characteristic of a certain amount of bitcoin, it can avoid the mechanism of additional issuance of legal currency, thus forming a differentiated competition with legal currency. When there is a problem with the legal currency in the market, the funds in the market will naturally flow to a differentiated competitive product such as Bitcoin.
In terms of differentiated competition with fiat currencies, in specific practice, Bitcoin increasingly shows its differentiated characteristics. When the currencies of some countries experience high inflation, the local Bitcoin transaction volume has risen significantly. This is true in regions such as Argentina, Turkey and Nigeria. This shows that the market is accepting Bitcoin as a tool to compete with existing legal currencies.
Another basic requirement as a safe-haven asset is its weak correlation with other mainstream assets. The smaller the correlation, the higher its value as a safe-haven asset. According to a recent report by Coindesk, the correlation between Bitcoin and gold and S&P500 is now becoming more and more zero, and a negative correlation with the U.S. dollar is also beginning to appear. Therefore, in terms of its relevance to other assets, Bitcoin has increasingly hedging value.
In the current U.S. market, the continuous issuance of the U.S. dollar has caused widespread concerns about the depreciation of the U.S. dollar. Therefore, the market's natural selection can hedge the risk of the depreciation of the dollar. The market’s recent growth in interest in silver and uranium is indicative of this hedging trend. Bitcoin has also become a safe-haven asset choice for some individuals and institutions. Nowadays, the common practice of financial institutions is to use 0.5% to 1% of their assets to hold bitcoins, in order to hedge the market risk of the entire investment portfolio. Of course, for financial institutions with larger volumes and more conservative operations, such as Mass Mutual and Black Rock, the number of bitcoins they hold is a smaller proportion of their investment portfolios. At the other extreme of the market, there are also phenomena like MicroStrategy CEO Michael Saylor borrowing to hold large amounts of Bitcoin. At the other extreme, there are naturally a large number of institutional and individual investors who are not optimistic about Bitcoin, and choose gold or some types of bonds as safe-haven assets. Therefore, in the US market, in terms of choosing Bitcoin as a safe-haven asset, the user's choice is still on a very extreme continuum. However, judging from the current market development in the United States, more and more funds will flow into Bitcoin.
