Value Investors’ Opportunity Amid Bitcoin Halving, Coronavirus and Stock Crash
Liu Yi, master of Tsinghua University (best-known university in China), has a 20-year investment experience in A-share and 10-year of that in U.S. stock, as well as one of the earliest cryptocurrency investors, was invited to share his idea on bitcoin halving amid coronavirus, U.S. stock crash.
Q1: As an old gamer who has invested in BTC for 7 years, what do you think about the impact of the upcoming Bitcoin halving on the supply-demand relationship?
Liu: Bitcoin halving has a practical impact on the supply-demand relationship. To put it simply, 24 hours a day, 144 blocks on average, each block reduces 6.25 BTC, that is, 900 BTC will be reduced every day. In the current spot market, apart from futures and OTC trading, the daily turnover of BTC is several million. In other words, the impact of 900 BTC reduced a day is very small as it’s the stock market now. But nearly 330000 BTC will be reduced in a year, which is more than the BTC accumulated by Grayscale Investment, the largest buyer in the largest spot market for years. So, the long-term impact of the halving on supply-demand cannot be ignored.
But we need to separate the impact of halving from the market. I entered the crypto market in early 2013 and experienced the second bitcoin halving. At that time, investors didn’t pay much attention to the halving. Probably because investors hadn’t found the “law” of the bull market after halving as there was only a halving before that. Statistically speaking, the two halving can’t prove the law. But the human being is such a creature that likes to attribute, concluding causality from correlation.
In view of the fact that quite a number of participants in the market pay attention to halving as they think that halving will bullish the market. I believe that the halving bull would start in early January and to end before May.
Q4: What do you think coronavirus will affect the macroeconomic and risk preferences? Furthermore, what is the impact on the cryptocurrency market such as BTC as a “safe haven asset”?
Liu: The coronavirus outbreak has had a significant impact on the global capital market as well as crypto market, and the impact continues to ferment. At present, it seems that East Asia, the Middle East, Europe and the United States are all in the early stage of the outbreak. There is an argument in the mainstream public opinion that China has institutional advantages in fighting against the plague, while it will be very difficult for other countries to fight the coronavirus outbreak.
On March 8, the Federal Reserve cut interest rates by 50 basis points in an emergency. US stocks rose first and then fell. The S&P index fell nearly 3%. Why can’t the drastic interest rate cut stimulate the stock market? One is that the investors have expected the fed to cut interest rates in March. The second is that instead of waiting for the meeting scheduled for March 8, the Federal Reserve announced an emergency rate cut five days in advance as the Fed wants markets to see them decisively respond to a possible recession. But what the market sees is a Fed in a hurry. Moreover, after this interest rate cut, the policy space of the Federal Reserve has been compressed, and there are fewer weapons to stimulate the economy.
If the U.S. stock market continues to fall, will it bullish or bearish the bitcoin? Is bitcoin a risk asset or a safe-haven asset? My opinion is that if bitcoin is regarded as a safe-haven asset, it is also a very special safe-haven asset. It can only be used as a safe haven for hyperinflation, or a safe haven tool for currency crisis, but it cannot be used to avoid the risk of credit crisis.
When a country experiences a currency crisis, that is, the sharp depreciation of fiat money, the local bitcoin transaction volume will increase greatly. This is not speculation, but fact, which has been repeatedly confirmed in Argentina, Venezuela, Turkey, South Africa and other countries. The reason is that the currency crisis is always accompanied by capital outflow, foreign exchange control, stock crash and real estate price decline. Apart from buying bitcoin through the Internet, locals have no other reliable means to preserve their wealth.
Will bitcoin pump if the coronavirus causes the global economic depression or even credit crisis? Can bitcoin replace the U.S. dollar as the world’s major reserve currency? But I think it’s just a fantasy, at least in the next few years, it won’t happen. The reason is that the vast majority of global investors, whether individuals or institutions, do not know about bitcoin or recognize bitcoin, nor participate in the cryptocurrency market. When the credit crisis comes, investors are all thinking about how to protect their lives. Their first choice will be the mainstream safe-haven assets such as U.S. Treasury bonds, US dollar, Japanese yen and gold. Gold can be banned from trading and confiscated. As long as the US is the world’s largest military power, the credit of US Treasury bonds and US dollars will not collapse.
In the past, bitcoin has had a very low correlation with the stock market as it is neither a positive correlation nor a negative correlation. The main reason is that bitcoin investors and stock investors are two independent groups with a low degree of overlap. But this is changing as the share of institutions in the bitcoin market increases. As a result, I predict that the correlation between bitcoin and stock indexes, as well as commodities such as crude oil, will continue to improve in the next decade. To sum up, if the global stock market, especially the U.S. stock market bear runs, it will bearish bitcoin as well.