Bitcoin attempts to break the $100,000 mark again

Source: Talking about Li and Talking about the Outside

The last time Bitcoin broke through $100,000 was on December 5th of last year. I remember we also published a retrospective article at that time and sold part of our Bitcoin holdings. As shown in the picture below.

Today (May 8th, Beijing time), the Federal Reserve decided to continue pausing interest rate cuts and maintain the current interest rate. Powell also reiterated that the Federal Reserve is not in a hurry to cut rates. This result basically aligns with the market's previous expectations, so there has not been any significant volatility in the market.

In yesterday's article (May 7th), we mentioned several major macro factors affecting the current market trend, including the economic development outlook in the U.S., expectations for interest rate cuts by the Federal Reserve, and the political situation in certain countries/regions.

Regarding interest rate cuts, the market still has expectations for a cut in July. According to the Federal Reserve's observation tool, the probability of a rate cut in July is currently 55.9%. As shown in the picture below.

As for the global situation, the news we can see mainly focuses on the conflict between India and Pakistan. In the recent days of conflict, Pakistan claimed to have shot down 5 Indian fighter jets and 1 drone (but India denied this). From some known data and information available online, it seems to indicate that the actual combat capability of Eastern weapons appears to be decent. The military industry index has risen well in the past few days; I wonder if this is somewhat related to the situation.

In yesterday's article, we also mentioned that if Powell's speech aligns with market expectations, Bitcoin may challenge the $99,000 level. As of the writing of this article, Bitcoin's price is around $98,700, and it seems to be attempting to break through the $100,000 mark again. As shown in the picture below.

1. What is driving the current Bitcoin price higher?

When existing variables (including tariff issues, expectations for interest rate cuts, etc.) are gradually digested by the market, new variables will have a short-term impact on the market.

From the current macro situation, the India-Pakistan conflict seems to be a new variable. In response to such geopolitical conflicts, the market often reacts inconsistently. For example, some investors (funds) may choose to turn to gold as a hedging tool, while others may consider Bitcoin as a hedging tool.

Since the beginning of this month (May), with the changes in the global situation, Bitcoin has also re-touched the $97,000 level. However, from the current comprehensive development of the cryptocurrency market, although Bitcoin has been announced by the U.S. to be included in the strategic reserve plan (currently only in the planning stage), Bitcoin does not yet possess the attributes of a global safe-haven tool. The current impression is that Bitcoin's rise is more driven by news (media) and primarily by institutional hedging speculation.

Given the ongoing escalation of tensions in some countries/regions, this may lead to a so-called short squeeze, where previously overly leveraged short positions may be liquidated by the market, pushing Bitcoin back up to $100,000 or even higher.

However, whether this price increase is sustainable, or how long it can last, may require us to raise a new question mark.

As for how to respond to the current market, it depends on your personal position and risk preference. As we mentioned in the previous article: opportunities and traps can sometimes appear simultaneously. Unless you are a very determined long-term holder of Bitcoin, it is best not to go all-in during a bull market (currently). Protecting profits is more important than seeking more risky profits; otherwise, you may continue to miss out on greater opportunities in the next cycle.

In our view, the core and underlying logic of the market remains liquidity. As long as there is no fundamental change in liquidity itself, the rapid rise in prices, in the short term, is both an opportunity and a risk.

2. The soaring Bitcoin and the out-of-circle stablecoins

The tension in the global situation can not only push up the prices of gold and Bitcoin to some extent, but we also cannot overlook stablecoins.

Currently, stablecoins seem to no longer belong exclusively to the cryptocurrency industry but have become a more widely used trading currency in certain global contexts (equivalent to digital dollars). Although there is currently no clear data to support this online, we can speculate that as the conflict between India and Pakistan escalates, USDC or USDT may become an important hedging tool in the eyes of some investors in both countries, which could lead to a surge in demand for stablecoins.

In fact, in terms of the development history of the cryptocurrency industry, we believe that stablecoins are currently the best-developed and most effective in breaking out of their original context, followed by Bitcoin. This may also reflect the issue we mentioned in a previous article, as shown in the picture below.

The cryptocurrency market capitalization relies on stablecoins, but the current cycle has seen stablecoin issuance continuously breaking historical records, while the growth of cryptocurrency market capitalization has not met theoretical expectations. The core reasons for this may mainly focus on several aspects:

• Primarily used to purchase Bitcoin, rather than pushing up the market capitalization of all altcoins as in historical cycles.

• Many are used for on-chain DeFi activities and exchange financial products (especially USDC).

• Used for certain specific out-of-circle scenarios, such as some illegal or gray transactions (reportedly popular in Northern Myanmar), cross-border remittances, cross-border consumption, etc.

In any case, as we mentioned in our previous article: the current market seems to have reached an important moment of choice.

In the short term, it seems that tariffs and interest rate cuts have been largely digested by the market, and the new variable at this stage is geopolitical conflict (currently mainly the India-Pakistan conflict). It seems that people are no longer focusing on the fundamentals of the cryptocurrency market (or cryptocurrencies) themselves; prices have mainly become driven by news (such as headline news reports, Trump's tweets, Powell's speech content, etc.).

On one hand, Bitcoin is now attempting to break through the $100,000 mark again!

On the other hand, this breakthrough seems to be detached from certain fundamentals. Will $100,000 become a new trap? If the new variable of the India-Pakistan conflict suddenly turns around in a few days, with India opening the floodgates and Pakistan reconciling, how will the market choose then? What will your response strategy be?

Today's article serves as a supplement to yesterday's (May 7th) article. At the end of the article, we once again share a line from yesterday's article: in the current market sentiment, if your investment risk preference is not that high, then in the short term, the safest method remains to continue holding what you consider a sufficient proportion of cash liquidity. Do not recklessly go all-in or fully invest; only when your position makes you comfortable can you both attack and defend, thus better facing potential market fluctuations. Of course, if you are also a very determined long-term holder of Bitcoin, you can still continue to buy and accumulate more Bitcoin at any time.