Yesterday, I wrote an article titled “Why Bitcoin ETF is the Best Financial Product” and published it On the chainless.hk website. After the article was published, some readers raised the following two questions:
1. They believe that investing in Bitcoin has a huge advantage over stocks: investing in stocks requires first judging the macro direction, then considering the rotation of the sector, and finally finding the right leading stock in the industry to make a profit. You may lose money even if you choose the right direction and sector. However, Bitcoin can be profitable if you correctly understand the macro direction. It makes investing in Bitcoin relatively simple and more error-tolerant.
2. They doubt that “Bitcoin has almost no news-induced declines.” Because they often see the price of Bitcoin rise and fall in response to certain news, they may want you to explain this point more.
In order to answer these two questions, we need to start with Bitcoin’s valuation method.
1. Stock valuations are based on profit forecasts
Stocks represent the value of a company, and we usually use the company’s fundamentals to express this value. Changes in corporate fundamentals are the root cause of rising and falling stock prices. Analysts will predict stock earnings based on possible changes in corporate fundamentals.
Changes in stock fundamentals can be divided into changes within the company and changes in the external environment. Changes within the company include increases in market share, research and development of new technologies, and the launch of new products, which may lead to changes in the company’s profits. We can call this kind of change caused by “internal changes of the enterprise” as “enterprise’s own news .” When good news appears, if someone grasps the inside information and buys the stock before the company makes the news public, he can make considerable profits in the short term. This kind of trading is called “insider trading” and is illegal in the stock market.
Changes in the external environment include industry policies, the emergence of substitute products, etc. External changes also have breaking news. For example, as soon as China’s education and training regulations were introduced, New Oriental was so embarrassed that it couldn’t even find it.
Environmental changes are widespread. For example, the same stock may have completely different valuations in different places where it is listed, just as China’s A-shares, B-shares, and Hong Kong stocks have other valuations.
Let’s talk about gold again. Does gold have fundamentals? The characteristics of gold determine that its own change is zero. The increase in gold volume is reported with forecasts and is a certainty rather than a change. New reserves are uncertain and involve changes in the total amount of gold. They can be as external or internal news (analogous to changes within a company). Since it involves whole volume changes, it seems more reasonable to classify them as internal changes. Without changes in fundamentals, valuation becomes simple, with only external factors affecting price.
Satoshi Nakamoto understood the essence of gold and applied it to the design of Bitcoin. Bitcoin’s internal information only includes program changes; no changes have affected the issuance in 15 years. Satoshi Nakamoto’s spirit of “0.1 structure from beginning to end” finally reached the day the capital giants favored him.
2. Bitcoin’s valuation is demand valuation
Bitcoin has no fundamentals. Its valuation aligns with the characteristics of commodities and is valued based on supply and demand. The supply of Bitcoin and the transfer on the chain are clear-cut and much more straightforward than the valuation of general commodities. Bitcoin’s valuation is affected by only three factors: supply, inventory, and market demand. External factors are mainly reflected in their impact on demand.
The supply of Bitcoin is known and fixed and is halved every four years until the supply is exhausted. The current number of Bitcoins mined per day is around 900.
The on-chain hoarding and transactions of Bitcoin are shown in Figure 1. It can be seen that after the approval of the Bitcoin ETF, the number of Bitcoin coins that have not been traded in one year dropped from 70.72% to 68.97%. There was a decline of 36,750 BTC, while ETFs bought about 80,000 BTC. The blue line in Table 1 represents hoarding, and the yellow line represents trading.
There is no chart yet for the change in demand after the Bitcoin ETF was approved, with inflows of 40.8-45.9 billion in the 51 days from January 10 to March 2, 2024. BlackRock is close to 10 billion! At the same time, stablecoin funds inflowed USDC 1 billion and USDT 4.2 billion, for a total of 5.3 billion. It is also higher than the average stablecoin inflow. Even so, ETF inflows are almost ten times greater than stablecoins. Bitcoin ETFs have replaced stablecoins as the most significant factor affecting demand.
A comparison table of the quantity and transaction price of Bitcoin that has not been traded for more than one year
From the analysis of the above three points, the supply of Bitcoin is specific. The changes in hoarding and demand are shown in Table 1. The high point of Bitcoin price corresponds to the low point of hoarding, and the inflow of funds determines the price increase. The ETF purchased about 80,000 coins, more significant than the 36,700 coins flowing out on the chain. The ETF purchases will not be sold in large quantities, which, in disguise, reduces the liquidity of Bitcoin. What liquidity will look like in the future remains to be seen. We’ll need to wait until a year from now to make an accurate judgment on the ETF’s behavior.
The valuation of Bitcoin is more straightforward than the opinions of group friends. The original big crocodile Grayscale has now become a small shrimp. We only need to watch BlackRock, the leader of Bitcoin ETFs, observe BlackRock’s views and the data in Table 1 to make an informed decision.
ETF is approved, and Bitcoin has come into the mainstream. In this regard, Hal Finney, one of the founders of Bitcoin, commented on Bitcoin two days after its launch: “As an amusing thought experiment, imagine that Bitcoin is successful and becomes the dominant payment system in use throughout the world. Then the total value of the currency should be equal to the total value of all the wealth in the world. Current estimates of total worldwide household wealth that I have found range from $100 trillion to $300 trillion.
With 20 million coins, that gives each coin a value of about $10 million.” Hal Finney’s vision for Bitcoin to become a major payment system refers to BTC application success. Whether it can take over the hot of AI in the future depends on the popularity of Bitcoin applications and the applications of Bitcoin.
Conclusion:
Bitcoin’s valuation is generally based on supply and demand, but demand is also affected by market sentiment, external news, and other factors. Bitcoin may be easier to value than traditional assets, but it also requires paying close attention to market dynamics.
At the same time, we must also realize that there must be some uncertainties and risks in the market, and Bitcoin is no exception. Investors need to remain cautious and carefully assess risks. While pursuing high returns, you should also consider risk control and asset diversification.
Whether it is Bitcoin or other assets, investment requires rational thinking and in-depth research to avoid blind following and speculation. This article helps readers understand the essential characteristics of Bitcoin and the internal and external factors that drive value, which will be helpful for investors to make informed decisions.
3. How to obtain returns comparable to those of Bitcoin back then
The idea of the DW20 Bitcoin Standard that I designed comes from Hal Finney’s vision, which means that Bitcoin Standard will become the main payment system. This idea has already taken shape in 2023. Simply put, it is to equip Bitcoin with the ruler it lacks, use Bitcoin to measure global economic development, and use DW20 (Dai Wei Coin) to replace stablecoins for daily trade. Bitcoin and Dai Wei coin together form a non-inflationary Bitcoin-based system. If realized, the price increase expected by Hal Finney may make Bitcoin more popular.
The issuance principle of Dai Wei Coin is the same as that of Bitcoin. It is a consensus currency and requires growth from air to asset currency (stable currency). The difference is that DW20 (Dai Wei Coin) adopts an unconditional airdrop method. Anyone can register for free to receive airdrops. The process from air to asset is a process of huge profits. Let us use DW20 (Dai Wei Coin) to catch the Bitcoin shuttle bus and help Bitcoin simultaneously. Today’s DW20 (Dai Wei Coin) is like early Bitcoin. Only early participation can make profits quickly. The earlier you register, the more likely you will achieve a class leap. Bitcoin’s era of huge profits has been missed. Don’t miss DW20 (Dai Wei Coin) again. Please give it to Give yourself a chance to get rich and receive airdrops at 0 cost!
APP download link: https://eco.chainless.top/download?code=8613510870809; you will receive a big red envelope that will rise, possibly to tens of thousands of dollars.
