Against the backdrop of today's boom in the digital currency market, the price of Bitcoin has been rising and has reached a record high. However, with this comes a series of potential risks that cannot be ignored and could have far-reaching consequences for the market and investors. This article will delve into the three major risks and challenges faced by Bitcoin after its price reached a record high, and will help you understand the changes in the digital currency market.

As of December 2, the spot price of Bitcoin has risen from the year's lowest price of approximately US$3,782 to approximately US$19,880, setting a new historical high. The digital currency market has accelerated its rise. According to CoinMarketCap data, the total market value of digital currencies has increased by approximately 200% during the year.

The rapid rise in the price of Bitcoin comes from the fact that its value is gradually recognized by the mainstream business ecosystem, such as Jack, the founder of Twitter and Square.
Dorsey promoted Bitcoin in a high-profile manner in Silicon Valley, calling it the next generation Internet native currency, and publicly purchased $50 million in Bitcoin. Of course, in addition to the Internet circle, there are also Bitcoin trusts launched in the United States by financial institution Grayscale to help traditional financial institutions obtain Bitcoin asset allocation.

The volatility of the digital currency market is higher than that of traditional financial markets, making it suitable for investors with higher risk appetite.

As the price of Bitcoin reaches a new all-time high, I will briefly analyze the potential risks from three perspectives: spot, derivatives and macro.

Growth in volatility

Since November, Bitcoin volatility has increased significantly. Currently, its annualized volatility in the past 30 days is approximately 71.21%, while the average in October is only 36%.
. As the volatility of Bitcoin increased sharply, the entire digital currency market became active again. Bitcoin trading volume, one of the largest, hit a new high on November 19, with a total platform trading volume of approximately 250
billion, and continued to set records in the following days.

Amplification of price volatility and trading volume usually represents an increase in the degree of disagreement between market traders on the pricing of the underlying asset. With monthly volatility hitting a five-month high, the market is facing more uncertainty.

Position changes in derivatives markets

2020 was the year that Bitcoin derivatives were widely accepted by mainstream hedge funds. Traditional financial institutions gained Bitcoin exposure through futures derivatives of CME, the world's largest derivatives trading platform. According to CFTC 3
According to documents disclosed on March 30, the flagship fund of quantitative giant Renaissance Technologies entered the Bitcoin futures market. August 18, 2020
CME’s Bitcoin position hit a record high of more than 70,000 Bitcoins, and the entry of professional hedge funds into the market represents a high level of specialization in the market.

The net position of hedge funds trading Bitcoin futures on the CME Chicago Mercantile Exchange is usually net short. According to skew analysis, most hedge funds use forward arbitrage (cash and
carry) strategy earns a premium (high futures premium represents optimistic market expectations). According to the CoT report released on November 24, 2020, the current net short position of leveraged (hedge) funds is approximately 22,115
BTC are short, and the net long position of retail accounts is 11,585 BTC long. The net short position of hedge funds has reached a historical high, and short selling sentiment has begun to show.

Currently, the total open interest in the BTC futures market is approximately 6.3 billion, which has increased by 133% since the beginning of the year and continues to reach new historical highs. Unlike the spot market, the increase in the open positions of derivatives in the zero-sum game indicates the degree of disagreement between the two parties regarding the spot underlying. .

The impact of the macro environment

In a recent institutional report from Citibank, it was mentioned that the 1970s
Similarities between the 1990s gold market and current Bitcoin. He also pointed out that violent price fluctuations are one of the characteristics of Bitcoin, "and it is a long-term trend."

As the price of gold fell to a 4-month low after breaking through a record high, the rising market risk appetite (risk-on) continued to push the S&P index to record highs. According to the skew report, traditional financial markets such as the U.S. stock market analyzed the
The impact of price changes on BTC is increasing, and the most active trading time for BTC recently is during the opening hours of US stocks.

With the increasing influence of "new" North American participants (institutions and individuals) on BTC prices in 2020, market participants' overly positive emotions and uncertainty from North America and the macro environment, such as
Covid-19, post-U.S. election changes and even “seasonal factors” have injected more uncertainty into the still-early digital currency ecosystem.