Economic Crisis and the Response of the Digital Money Market

Economic crises are not a new phenomenon, but the current crisis is different from those in the past. Previous financial crises mainly stemmed from economic issues and could typically be alleviated through economic measures such as lowering interest rates and increasing the money supply. However, the current crisis involves not only economic factors but also public health issues, making traditional solutions less effective.

The characteristics of the coronavirus add complexity to this crisis. It has a long incubation period, high infectivity, and strong lethality, making it a tricky issue. The responses from governments and financial institutions have also triggered uncertainty in the market.

The response measures from the U.S. government and the Federal Reserve have raised concerns in the market. The Federal Reserve's sudden cut of interest rates to near zero, although aimed at stimulating the economy, has also been interpreted by the market as a signal that the situation may be more severe than expected. This reaction is similar to the extreme measures taken by doctors when faced with a difficult ailment, inevitably triggering more doubts.

In this context, Bitcoin's performance has sparked discussions about whether it is a safe-haven asset. Although Bitcoin has often been seen as "digital gold" in the past, during this crisis, its behavior resembles that of a risk asset. The price of Bitcoin has shown a higher correlation with traditional risk assets such as crude oil and stock indices, while its correlation with gold has been relatively lower.

There are two main reasons why Bitcoin is considered a safe-haven asset: First, compared to fiat currencies that can be issued in unlimited quantities, the total supply of Bitcoin is fixed, theoretically allowing it to resist inflation; second, Bitcoin is easy to store and transfer, which may provide advantages over traditional assets during special periods. However, these characteristics do not equate to true safe-haven properties, especially during severe market turmoil.

It is worth noting that during this crisis, stablecoins, especially USDT, have performed exceptionally well. Since October last year, the value of USDT has significantly increased relative to other cryptocurrencies, with a maximum increase of 20%. This phenomenon reflects the growing demand for stable assets in the market.

As the largest stablecoin by market share, the development strategy of USDT is also worth noting. Tether has gradually shifted its focus to ERC20-USDT, which now accounts for 61.35% of the total market value of USDT, reaching a share of 50.99% in the stablecoin market. Although there have always been controversies surrounding the issuance and auditing issues of USDT, the market seems to have tacitly accepted this practice.

For investors, the current market environment requires us to reassess the positioning of Bitcoin. It should not be simply viewed as a safe-haven asset, but rather recognized for its characteristics as a risk asset. Whether adopting a value investing or speculative trading strategy, it is essential to fully understand this.

Economic crises often contain opportunities. For ordinary people, this may be a rare chance to achieve social mobility. However, investment decisions must still be made cautiously, with a thorough assessment of risks. In turbulent markets, maintaining rationality and a long-term perspective is crucial.