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Recently, both gold and Bitcoin prices have experienced significant fluctuations, with international gold prices surpassing the $2,100 per ounce mark and Bitcoin briefly reaching highs above $73,000. Analysts believe that a combination of factors, including hedging demand, investment speculation, expectations of Federal Reserve monetary policy, and changes in supply and demand dynamics, are the main reasons behind this round of price surges.
Bitcoin prices have been steadily rising since the fourth quarter of last year, with a cumulative increase of about 60% this year alone, and experiencing multiple instances of large fluctuations recently. In March, New York market gold futures briefly surpassed $2,200 per ounce, marking an increase of over 5% for the month.
Increased Hedging Demand, U.S. Credit Impaired
Gold, as a traditional safe-haven asset, has seen its price rise primarily due to heightened risk aversion in the market. From the escalation of the Ukraine crisis to the outbreak of new conflicts in the Middle East and the ongoing Red Sea crisis, central banks of many countries have been continuously increasing their gold holdings in recent years, driving gold prices into a sustained upward trend.
In theory, U.S. Treasuries are also considered "safe assets," but as of the beginning of this year, the U.S. federal government's debt has exceeded $34 trillion. Former President of the Federal Reserve Bank of Dallas, Richard Fisher, previously stated that if the U.S. government continues to borrow more money, the oversupply of bonds in the bond market will eventually push up bond yields. This will lead to a vicious cycle of rising debt and interest costs, requiring the U.S. government to allocate more money to repay its debts.
U.S. bank strategists recently stated that the pace of U.S. debt expansion is accelerating, with the debt expected to increase from $34 trillion to $35 trillion in less than a hundred days. This helps explain why the prices of assets such as gold and Bitcoin are close to or exceeding historical highs.
David Goldman, a U.S. economist, recently wrote in a media article that foreign central banks hold $3.4 trillion in U.S. Treasury bonds, and foreign-held U.S. Treasury bonds total over $8 trillion. The seizure of Russia's foreign exchange reserves prompted many foreign investors, whether official or private, to turn to gold.
Since the escalation of the Ukraine crisis, the United States has frozen assets of the Central Bank of Russia, prohibiting Americans from transacting with the Russian Central Bank, the Russian National Wealth Fund, and the Russian Ministry of Finance. This means that assets held by the Russian Central Bank within the United States or controlled by Americans have been frozen. In February 2022, the United States announced the freezing of billions of dollars in foreign exchange reserves of the Central Bank of Afghanistan. According to Ajmal Ahmady, the former Governor of the Central Bank of Afghanistan, the Central Bank of Afghanistan holds about $9 billion in foreign exchange reserves, of which about $7 billion is held in U.S. banks. Analysts believe that the significant increase in gold purchases by central banks is to some extent to avoid similar losses under certain circumstances.
Endorsement by U.S. Authorities, Bitcoin's Soaring
The recent surge in Bitcoin prices is not only due to the inability of traditional investment markets to meet investment or speculative demand but also benefited from the historic relaxation of Bitcoin regulation by U.S. regulatory authorities, leading to a large influx of U.S. dollar funds into Bitcoin spot exchange-traded funds (ETFs). Although the price of Bitcoin has experienced some retracements recently, on March 18, the price of a single Bitcoin remained above $68,000, at near highs in recent years.
The U.S. Securities and Exchange Commission (SEC) approved Bitcoin spot ETFs in January this year, allowing multiple companies to apply for and be granted permission to trade Bitcoin spot ETFs. This means that institutional and retail investors can invest in Bitcoin through traditional stock accounts without directly holding Bitcoin.
Although SEC Chairman Gary Gensler stated in a statement that the Commission has approved the listing and trading of some Bitcoin spot ETF stocks, it does not mean approval or support for Bitcoin. Investors should exercise caution when dealing with products related to Bitcoin and cryptocurrencies.
However, this still stimulates investment, especially speculative demand, including international hot money speculation. Since the approval of Bitcoin spot ETFs in the United States, the crypto market has begun to anticipate the prospects of other virtual currency spot ETF applications. Recently, not only Bitcoin but the entire cryptocurrency market has seen a wave of rallies.
For a long time, cryptocurrencies represented by Bitcoin, Ethereum, and Ripple have not been endorsed by sovereign credit but have been generated through algorithms. Therefore, there is considerable controversy in the industry over whether cryptocurrencies can be considered currency. However, changes in U.S. regulatory policies are seen by the market as an endorsement of cryptocurrencies, leading to a greater degree of market acceptance of their investment value.
Experts say that the impact of Bitcoin spot ETFs can be compared to that of gold ETFs. Since the introduction of gold ETFs, the gold market has experienced a long period of bullishness and significant price increases. Bitcoin spot ETFs may also follow a similar trajectory.
Federal Reserve Turns, Supply and Demand Rebalances
The recent price increases in both gold and Bitcoin to some extent reflect changes in market expectations for U.S. dollar supply, as assets priced in U.S. dollars are naturally negatively correlated with the U.S. dollar. Therefore, changes in Federal Reserve monetary policy expectations will to some extent affect changes in gold and Bitcoin prices. In addition, recent changes in the supply and demand dynamics of these two investment targets also present certain variables, with indications that their supply will relatively shrink, also pushing up price expectations to some extent.
Market analysts believe that the bullish trend in gold is due to market expectations of the Federal Reserve's interest rate cuts starting in June. As U.S. inflation pressures begin to decline, the end of the Federal Reserve's rate hike cycle is approaching, and the continued release of loose expectations will lead to lower market interest rates and a weaker U.S. dollar, creating upward price pressure for assets priced in U.S. dollars.
In addition, changes in the supply and demand dynamics at the actual production level also have an impact on market prices. Regarding gold, according to a recent report by the Nikkei, due to the gradual depletion of ore resources and the rising global labor costs, the production cost of gold has reached its highest level in history. This has led many to believe that mines that are operating at a loss will eventually cease production. Against the backdrop of global economic turmoil, gold as a safe-haven asset is expected to remain in a high-price range, with the possibility of further increases.
As for Bitcoin, according to media reports, April will see the once-in-four-years "halving." Bitcoin is generated through the so-called "mining" process, and due to algorithmic design limitations, the number of new tokens generated is reduced by about half every four years. This inherent deflationary characteristic creates its natural scarcity and also creates upward price expectations in the market. However, due to the lack of intrinsic value support for Bitcoin, profit-taking by speculative funds has occurred under high volatility, and it is said that many participants have experienced liquidation. |
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Post time 28-3-2024 08:21:05