Virtual currency is skyrocketing.
Starting from last night, virtual currency has entered a frenzy mode. Bitcoin broke through $71000; Ethereum surged nearly 20%, reaching prices above $3700. The remaining virtual currencies have almost surged across the board. As of now, in the past 24 hours, the number of people in this market who have sold out has exceeded 85000.
Why is virtual currency so crazy? Analysts believe that there may be a significant correlation with the supply of virtual currency. On May 20th local time, the Venezuelan government announced a ban on cryptocurrency mining due to excessive electricity demand. The Venezuelan Ministry of Electricity has announced a special action to disconnect all Bitcoin mines from the power grid, in an attempt to stabilize its energy supply and ensure electricity for people's livelihoods. The authorities have seized over 11000 Bitcoin mining machines.
At the same time, the rise of virtual currencies may also be related to gold and the US dollar. Recently, although the US dollar index has remained high, physical assets such as gold have continued to rise, which may correspond to a sustained weakening of US dollar credit.
On Monday local time, Federal Reserve Vice Chairman Philip Jefferson stated at a meeting of the Mortgage Bankers Association in New York that it is currently uncertain whether inflation contraction will continue. Loretta Mester, President of Cleveland United Reserve Bank, said he is considering abandoning his previous expectation of the central bank lowering interest rates three times this year. This also means that offshore US dollar liquidity may still be a problem, and the demand for virtual currencies will increase as a result.
Virtual currency burst
In early trading today, virtual currencies surged across the board, with Bitcoin reaching a historic high. Ethereum surged nearly 20%, with prices exceeding $3700, making it the main virtual currency with the largest increase. From the market perspective, in the past 24 hours, the number of positions sold exceeded 85000 at one point. According to CoinMarketCap data, the global cryptocurrency market rose nearly 3% overall on Monday, reaching $2.47 trillion.
According to Coinglass data, the open interest value of Bitcoin futures contracts on the Deribit exchange currently reaches $1.6 billion. Although this number is still lower than the $3 billion before Bitcoin halved, market sentiment has shown signs of optimism.
The recently released Consumer Price Index in the United States shows that inflation has eased, which also provides support for the rise in Bitcoin prices. The improvement in market sentiment reflects investors' expectations for a sustained rise in Bitcoin prices in the coming months.
So, what exactly happened?
From a supply side perspective, the Venezuelan Ministry of Electricity has announced a special action to disconnect all Bitcoin mines from the grid, in an attempt to stabilize its energy supply and ensure electricity for people's livelihoods. The authorities have seized over 11000 Bitcoin mining machines. The Ministry of Electricity emphasizes the need to provide efficient and reliable electricity services throughout Venezuela by eliminating the pressure caused by these high energy consuming farms. Officials in the country stated that these measures are crucial for stabilizing the unreliable national electricity supply over the past decade. The country has been experiencing continuous power outages, especially since 2019, which have seriously affected people's daily lives and overall economic activities.
From the demand side, the cash flow flowing to Bitcoin ETFs in Hong Kong, China and the United States is particularly noteworthy. The net assets of Hong Kong ETFs increased by $244 million, while US ETFs have accumulated over 14000 Bitcoins in the past week. In addition, a single entity has purchased over 16445 Bitcoins worth over $1.1 billion in the past 24 hours. Another cryptowhale (an individual or entity with a large amount of digital assets in the cryptocurrency market) was also discovered, with a daily accumulated value of over $106 million in Bitcoin.
The Federal Reserve speaks heavily
From a macro perspective, the new high of Bitcoin may also be related to the new high of gold prices. Recently, physical assets such as gold have continued to rise, which may correspond to a continued weakening of US dollar credit. Some argue that virtual currency, like gold, has a certain substitution effect on the US dollar.
From the perspective of the US dollar interest rate, the expectation of a significant easing in offshore US dollar liquidity remains weak, and emerging economies that have been affected by this also need to consider other payment methods, leading to an increase in demand for virtual currencies.
The news that came this morning Beijing time shows that there are still significant variables in the direction of the US interest rate. Several Federal Reserve officials revealed on the 20th local time that they continue to hold a cautious attitude towards interest rate policy:
Loretta Mester, President of Cleveland United Reserve Bank, said he is considering abandoning his previous expectation of the central bank lowering interest rates three times this year.
Federal Reserve Vice Chairman Philip Jefferson stated at a meeting of the Mortgage Bankers Association in New York that it is currently uncertain whether inflation contraction will continue.
Michael Barr, Vice Chairman of Financial Regulation, mentioned on Monday that the disappointing first quarter inflation data did not give him confidence to support interest rate cuts. Bar said that it is necessary to allow the central bank's restrictive policies more time to continue to play a role.
San Francisco Federal Reserve President Mary Daly stated that there is no evidence to suggest a rate hike, but she is not confident that the inflation rate will drop to 2%, and she does not believe there is an urgency for a rate cut.
Analysts believe that from the perspective of financial games, there is indeed no need for the Federal Reserve to cut interest rates at present. The US dollar interest rate cut will only occur in two situations: first, there will be significant problems in the US financial system or economy (currently, there have been no such problems), and second, passive interest rate cuts; The second is that the US financial game has achieved its goal, achieving the so-called "harvest" and actively lowering interest rates. From a historical perspective, passive interest rate cuts are often prone to occur, but at the same time, global instability can also increase.