jakiro
In 2024, the global investment market had two assets with price hit new highs, and were ridiculed as “the update speed of research report titles cannot keep up with the speed of price hitting new highs.”
What are these two assets?That’s right, gold and Bitcoin.
Behind the continued surge in these two assets is the change in their long-term narrative.In this lecture today, let’s discuss what changes have occurred in the narrative of gold and Bitcoin. Can this change continue in the future?
The logic of gold price fluctuations: anti-inflation and risk avoidance
Let’s start with gold.
Let’s first think about why we should buy gold?Most people will blurt out: Gold preserves its value and resists inflation.
That’s right, in the history of gold investment in the past 100 years, the fluctuations in gold prices mainly come from two factors: “anti-inflation” and “help-averse”.
Here we look back at the currency history:
In human history, gold has served as the world currency for thousands of years, and the function of gold as a “store of value and means of payment” has been deeply rooted in people’s hearts.After the Bretton Woods system in 1945, the US dollar became the world currency, but the US dollar was still pegged to gold at that time.It was not until 1971 that the US dollar and gold were decoupled, and gold was considered to have withdrawn from the world currency stage.But as the most deeply rooted currency in human history, gold has become a hedge in the US dollar monetary system—
Whenever inflation expectations appear or the world is turbulent, people will have doubts and waver about the current monetary system, and they will often rush to the “white moonlight” of the past world, gold.
For example, after the Internet bubble in 2000, after the financial crisis in 2008, and after the COVID-19 epidemic in 2020, the Federal Reserve vigorously cut interest rates and implemented quantitative easing policies, and gold prices will rise at this time.In late October 2024, the price of gold exceeded US$2,800 per ounce, which is also related to inflation expectations.At that time, Trump’s probability of winning the election increased, and his policy propositions, including tariff increase, fiscal expansion, tightening of immigration, etc., would push up inflation, so the market responded to this expectation in advance.Similarly, Brexit, Sino-US trade frictions, Russia-Ukraine conflicts, Middle East disputes… As long as there are signs of turmoil, gold prices will also rise, which is the same as the old Chinese saying “antiques in prosperous times, gold in troubled times”.
Figure Gold price trend chart over the past 20 years
New gold narrative after 2022: island chainization
It seems that the rise in gold prices in the past two years is related to the world turmoil caused by Trump’s victory in the past two years, such as the conflict between Russia and Ukraine, and the world turmoil caused by Trump’s victory.But in fact, under similar superficial phenomena, the underlying logic has already made subtle differences.
I once predicted in the fourth lesson of the 2021 “Xiangshuai China Wealth Report (2020-2021)” that gold will still have a large (e.g. no less than 20%) returns in the next two years.At that time, my logic was the inflation expectations that monetary policy would be brought about by the post-epidemic epidemic.To this day, the increase in gold has far exceeded my expectations, but to be honest, in such a huge increase in gold, the anti-inflation factor may be weaker than I expected back then (the reason is that Bitcoin, as digital gold, acts as part of the anti-inflation function), but,The factors that make the world political structure much stronger in island chaining.
“Island chainization” is a word I proposed in 2022. It describes the situation where the globally integrated flat market has become independent of large islands, but there are still thousands of chain links between capital/trade/manpower, just like the former French Prime Minister de Verpan described “one world, two systems” –From a currency perspective, this means that the original position of the US dollar as a single world currency has undergone subtle changes..
During the Russian-Ukrainian conflict, the United States frozen Russia’s 300 billion US dollars in foreign exchange reserves.Because the foreign exchange reserves of various countries are mainly US dollar assets, central banks in many countries naturally have the need to “diversify allocations and diversify risks.”There are not many major assets independent of the US dollar system, and gold is an important one.Starting from 2022, the super buyers in the global gold market have become governments, and central banks including China, India, Turkey and Russia have increased their purchase demand by five times.
Table Changes in Gold Reserves of Various Countries
In short, the world is moving from “globalization” to “island chainization”, and asset allocation has also begun to evolve under the logic of “one world, two systems”. The rise in gold prices is the embodiment of the new narrative under the island chain political ecology.
A survey by the World Gold Council in 2024 showed that 29% of central banks intend to increase their gold reserves in the next 12 months, the highest level since the survey was launched in 2018; 81% of central banks expect global gold reserves to increase in the next 12 months.
These data and surveys show that the “island chain narrative” has become a basic support for the medium and long-term gold prices. In addition to anti-inflation and risk aversion, the rise and fall of gold prices may be closely related to the global “island chain” trend.If this trend continues, then gold prices will have some support.Of course, inflation and safe-haven functions still have an important impact on gold prices: for example, after Trump takes office, if the Pakistan-Israel issue and the Russian-Ukrainian conflict can be resolved, it may be a negative impact on gold.
Bitcoin: From Resistance Narrative to Transaction Narrative
After talking about gold, let’s look at Bitcoin.
I need to remind you that trading Bitcoin in China is illegal.But you may need to understand that in the global investment market, in a sense, Bitcoin and gold are assets of the same nature: first, they are both supplements and substitutes for existing sovereign credit currencies; second, neither of them is supported by cash flow, and their value is mainly based on people’s common beliefs, that is, relying on narratives.
When the narrative of gold changes with the “island chainization” of the world’s political landscape, the underlying logic of Bitcoin has undergone more significant changes. The US dollar system has shifted from “restriction” to “incorporation”, and Bitcoin has become a “mainstream asset” in the digital dollar system from “marginal person” in the US dollar system.
Two years ago, in the 6th Lecture of the 2022 “Xiangshuai China Wealth Report (2022-2023)”, I once told in detail that the US government’s attitude towards Bitcoin took a 180-degree turn between 2020 and 2022: from “illegal, speculative, inefficient” to “innovation, important.”This shift means that the US dollar system shifts from “restriction” to “inclusion” of Bitcoin, and incorporates the digital encryption ecosystem into the US financial regulatory system.Federal Reserve Chairman Powell said, “Bitcoin is like gold, exists in digital form” – which means that the US government’s calculation is that in the digital dollar system, there is no longer an existence independent of the dollar system like gold.As digital gold, Bitcoin has gradually become an important part of the hegemony of the “digital dollar”.
From 2022 to 2024, the United States even pressed the acceleration button of “inclusion”.The digital encryption ecosystem that has been wildly growing for more than ten years has gradually been incorporated into the US financial regulatory system, and the US dollar credit has also undergone “extended expansion” in the digital world: in January and July 2024, the US Securities and Exchange Commission (SEC) approved Bitcoin spot ETFs and Ethereum ETFs for the first time, paving the way for many American institutional investors to allocate crypto assets.
In November 2024, Trump’s victory brought this “introduction” narrative into a carnival.During the campaign stage, Trump won more support with the “cryptocurrency president”. Many of the staunch supporters of the Trump team, including Musk and Peter Thiel, are supporters of the digital crypto industry.This is also the reason why the price of Bitcoin has directly broken through $100,000 since November.
Of course, the price fluctuations of Bitcoin are far greater than those of gold. It is not surprising to double in a few months, and it is not surprising to cut in half in a few months.Like all financial assets, the price of Bitcoin will be overreacted and of course it will be overreacted.But overall, under the narrative of “inclusion”, the positioning of crypto assets in the US financial market is no longer an “alien shape”, but a digital gold in the “digital dollar system”.
