I got out of a little position at the end of last year because the bull market was going up too fast. But I soon realized that I was wrong and never dared to get off easily.
This wave of bull market is so ferocious that it is hard to believe.
- The total market value of the cryptocurrency circle exceeded two trillion dollars, while at the end of last year, it was still around 500 billion dollars, and the market value rose four times in less than six months.
- It lasted for a long time and there was hardly any decent pullback. The overall unilateral rise lasted for more than half a year.
- The vast majority of the coin’s rise can not find any explanatory logic at all, that is, no reason to rise.
I thought, what forces are driving the cryptocurrency market so high?
First of all, I think we have to attribute to the quantitative easing by the global central banks.
Earlier this year various financial analysts gave data that the global central moms balance sheet liabilities increased by $20 trillion last year. This is a direct injection of $20 trillion of liquidity into the market by the global central banks, and after the monetary multiplier effect, the final amount of money in the market is a sky-high figure. covid19 is of course the culprit, as if the whole world can understand the use of quantitative easing by central banks in the face of disaster.
The capital markets are not the only ones going up in the cryptocurrency world, stocks and real estate are going up. Our cost of living is also going up.
But the earliest position of the cryptocurrency circle is to fight inflation, so this round of water release, the cryptocurrency circle share of the water is relatively large.
Secondly, I think we have to attribute the evolution of the AMM algorithm to the ethereum.
The Dex of the AMM algorithm mechanism, represented by uniswap, has accumulated a very solid spot depth in LPtoken.
For example, the liquidity of ETH-usdt trading pairs in uniswap is up to hundreds of millions of dollars in spot depth. To influence the price of ETH would require real ETH coins to smash and real Usdt to pull the plate. A few years ago, the price was set by the exchanges, which were able to influence the price through “fake coins”. There is a natural difference between the two ways of influencing prices, and the AMM mechanism makes price manipulation almost unfeasible.
Because AMM requires real money to manipulate prices down, it gives shorting power one less leg to stand on. In the stock market, there are naked short operations that allow you to sell shares without you having to actually borrow the shares. With the AMM algorithm, naked shorting becomes nearly impossible unless there is a counterparty that is “naked long”. The bots that move between cex and dex will make all naked shorts require real coins to back them.
But on the contrary, under the AMM algorithm, Tether can be “naked long”, i.e. Tether is a type of usdt stablecoin issuer that can put water in the air. I’m just reasoning here, I don’t know if Tether will actually release water. But if you consider the market for algorithmic stablecoins, like the recently hot Fei coin, you can probably feel how eager the market is to create “fiat money” out of thin air. Every time Tether prints Usdt, the various coin weibo groups are overjoyed.
In the AMM algorithm, because in a pair (such as ETH against usdt), to make more ETH, you can find a way to fictitiously create usdt, and to short ETH, i.e., you can’t put water on ETH.
Because bsc and heco such backed by the centralized exchange chain, with Pancake and mdex such uniswap competitors, so that other coins (such as BTC, LTC, BCH this class of non-smart contract coins) can also easily migrate to the AMM mechanism, which allows the vast majority of mainstream coins to enjoy the treatment of only naked more, not naked empty.
The third bull market support may be the compound this kind of lending contract.
Compound and aave currently hold a total of $17 billion in TVL, and have locked up tens of billions and billions of dollars of assets in venus on the bsc chain and channels on the heco chain, among others. This locks up a huge amount of liquidity.
The bottom line is that lending agreements are a leverage maker, locking coins in mainly to borrow stable coins like usdt out. The popularity of lending contracts has brought huge leverage to the cryptocurrency world.
This is not the same as previous lending on centralized exchanges, where collateral was not guaranteed in a locked position.
How good is compound? My feeling is that if you have a few thousand ETH, the lending contract alone allows you to get by on borrowing usdt money with almost no selling. Because borrowing u requires almost no interest. Lending contracts eliminate a lot of the need to sell. It’s the same as with houses in the US before the 2008 subprime crisis, you just need house prices to keep going up and you can get by on tuning your house.
With a perfect lending agreement, the concept of coins as stored value is complete. The so-called “stored” value, like a tank, can store water, can also scoop some water out to drink, and can also add water to it. eh is an effective value storage tool, anyway, my ETH feel do not want to sell, so useful things, why to sell?
The fourth bull market is supported by the development of defi’s entire ecology, making the coin a thing that can generate cash flow.
It is like planting a field, the coin is the land, there is land to plow and there will be a harvest. No wonder the various things in defi are called farm.
When coins can consistently create cash flow, the desire to sell goes down a lot. It’s like Warren Buffett not selling shares in those good companies and just letting them earn him money.
There are many scenarios for defi that are actually still the same as the last round of ICOs, a zero-sum game, or even a negative-sum game. But there are at least two scenarios that are positive-sum games.
One is the lptoken mining represented by uniswap, lptoken provides risk-bearing liquidity, users pay fees to trade, and lptoken harvests fees. This closed loop is to form a multi-win situation, creating a very good decentralized trading place for the entire ecology, trading is one of the bottom needs of the capital market.
Another one is the lending agreement represented by compound. Lending is one of the bottom needs of finance. Just look at how many commercial banks are near your home and you will see how positive this lending agreement is.
The cryptocurrency world has a clear positive-sum game that creates a clear multi-win business situation, and this is so awesome.
Will the bull market last forever? Will the so-called eternal bull market exist?
I don’t even add the prefix “I think” to this answer.
Now the overall market value of the cryptocurrency circle is still relying on the “ponzi”, I am not a derogatory sense here, it is neutral, just like social security is essentially a kind of ponzi, what is described here is that the power to maintain the overall system is from outside the system, not inside the system. What is needed for the cryptocurrency market cap to rise is for fresh investors and money to keep coming in.
The cost inside the cryptocurrency circle is now quite high. Nowadays, recruiting a programmer who feels of a very average level is asking for 40,000 monthly salary.
Mining is the most powerful tool for the coin circle to mobilize the people to join, and now the mining circle has fired up graphics cards and hard drives to the point of bringing down other industries. The game circle is starting to hate the coin circle. The mining circle is also bleeding the coin circle the most in the process of launching the people group to join the industry. Graphics cards and hard drives are all about selling coins to buy them. The crazier the mining circle is, the higher the cost of the circle is represented.
The PoC mining industry as a whole is still in the process of speculating on the concept, and I just have a feeling that the PoC mining circle will not be one of the biggest weights that will overwhelm the cryptocurrency circle this round of bull market. The PoW mining industry, represented by bitcoin mining, eventually and the consensus of value storage and decentralized currency achieve each other, everyone will use the arithmetic to measure the quality of the coin, and the price of the coin will drive the growth of the mining industry. poC mining industry for a short time is not yet seen to have such a layer of positive interaction with the price of the coin, more of the industry costs, rather than the value reflected.
The trouble comes when the industry’s operating costs grow, and, the industry’s growth in attracting foreign investment, the former exceeds the latter. The pace of foreign investment entry may put the brakes on hard, but the industry’s running costs can’t come down instantly. It takes time to fire people, and the psychological pressure from the sunk costs of mining can’t instantly make us give up on the mining industry.
The endless stream of new concepts in the cryptocurrency world is also going to consume huge costs in the circle.
God, can you tell me when this tipping point will be reached?
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/why-is-this-bull-market-so-ferocious-what-forces-are-supporting/
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