In our opinion, compared with the following three things, the bull-bear transition may only have a phased significance in the first half of 2021. The occurrence and impact of these three events will even more represent a milestone in the development of blockchain. They are, respectively:

The rise of Defi and NFT; the global migration of computing power centers; and the Ethereum 2.0 process.

（1）Defi and NFT:

In fact, the rise of Defi should strictly be counted from the second half of 2019, but this trend continued in the first half of this year. According to the statistics of DefiPulse, Defi’s lock-up volume increased from $15.87B on January 1, 2021 to $77.97B on August 12, an increase of 387%.

Exhibit 1: Defi’s lock-up amount from September 2020 to present

Source: DEFI PULSE

Exhibit 2: 2020.1-2021.6 NFT sales on OpenSea

Source: opensea.io，cryptoart.io，Dune Analytics

But the rise of NFT is really the new format this year. Compared with traditional tokens, NFT is indeed a big improvement, especially in the popularization and application level of blockchain. According to a report from Reuters on July 5, NFT achieved an order of magnitude increase in the first half of 2021.

（2）Migration of computing power:

Blockchain has been a global industry since its inception. Therefore, from a global perspective and the development of the blockchain, the migration of computing power will be the norm for the blockchain, and the decentralization formed by the dispersion in the migration process is beneficial to the healthy development of the system.

Although China’s regulation in the first half of the year seems to be the main reason for the migration of computing power. However, CCAF’s statistics show that, in fact, the migration has already begun even earlier, and it is becoming more and more decentralized, which is more and more conducive to the stable development of the Bitcoin system.

Exhibit 3: The proportion of countries accounting for the Bitcoin computing power of CCAF, the Cambridge Derivative Finance Center (2019.10-2021.4)

Source: CCAF statistics

（3）Ethereum 2.0 process

If Bitcoin is the spiritual pillar of the blockchain world, then Ethereum is the guarantee for the rapid progress of the blockchain. So this is why the entire industry is paying attention to the upgrade of Ethereum from 1.0 to 2.0. From POW to POS, it has been conceived for a long time, discussed for a long time, and still pending for a long time.

April 15, the Berlin fork disappointed the entire crypto world because there was still no consensus on important changes. It was not until the London fork on August 5 that EIP-1559, a change that changed the charging model of the Ethereum chain, was finally launched. The launch of EIP-1559 marks another step forward in the progress of ETH2.0.

In the Ethereum community, the indicated time point for the completion of 2.0 has always been: about 2022. We previously expected it to be at the end of 2022, but for now, we need to move ahead.

Blockchain + industry

As shown in the 2019 McKinsey report, the blockchain is at a critical point from the development stage to the growth stage. The next 10 years will be the 10 years when the blockchain releases value. The 2020 new crown epidemic is undoubtedly a booster for digital transformation. Companies want to use digitization to improve collaboration efficiency. The application of blockchain in the industry will also enter the fast lane. More fields will join the blockchain ecology, such as blockchain + live broadcast industry, blockchain + agricultural industry, Blockchain + medical industry.

The following will list several hot application areas of the future blockchain.

Blockchain + finance: The application of blockchain + finance has a high degree of maturity. Blockchain technology can be deeply applied to the financial industry supply chain finance, trade financing, capital management, payment and settlement, digital assets, extended fields and other links. Provide credible platform services in pledge, financing, project management and other links.

US payment giant VISA launched the blockchain-based cross-border payment network “B2B Connect” to facilitate cross-border payments by international financial institutions.

Blockchain + Intellectual Property: Blockchain timestamp, hash algorithm, asymmetric encryption and other technologies can effectively solve the problem of copyright confirmation, and blockchain smart contracts and consensus mechanisms can effectively assist multi-person collaboration in intellectual property rights. Consensus judgment and other links.

Blockchain + social: The application of blockchain technology in the social industry can be divided into instant messaging projects and social platform projects; instant messaging projects are simple to operate and have strong security; social platform project rewards and review mechanisms are relatively sound.

Blockchain + Energy: Blockchain can effectively improve indicators such as energy industry distribution and sharing, security and transparency, and promote transparency in multi-party transactions; global blockchain companies have established in-depth applications around distributed transactions, energy finance, carbon trading and other scenarios.

Blockchain + medical treatment: Blockchain can effectively solve the pain points of efficiency, sharing, management, platform and finance in the medical industry, build a complete technical framework, and efficiently apply to scenarios such as data encryption, traceability, and asset digitization.

With the gradual close integration of the blockchain and various industries, the economic benefits brought by the blockchain continue to increase, and it is expected that more companies and users will recognize the blockchain and increase the consensus on the value of the blockchain. Gradually deepen.

Attitudes towards blockchain

Texas, United States: The House of Representatives unanimously passed a “virtual currency bill” that recognizes the legal status of cryptocurrencies; the governor believes that “blockchain is a booming industry that Texas needs to participate in.”

Colorado, USA: A new state bill in the Senate proposes to use blockchain technology to protect private data from cyberattacks and solve the state’s existing data collection and retention problems.

Wyoming, USA: Decided to exempt property taxes on cryptocurrencies in this state. The bill defines “virtual currency” as a form of digital expression that serves as a medium of exchange, unit of account, or means of storage of value, and is not recognized as legal tender by the U.S. government. It aims to simplify the legal framework of cryptocurrency and the use of blockchain technology in the state to facilitate the establishment of related commercial venture capital.

Arizona, USA: Revise the bill that allows residents of this state to use cryptocurrency to pay taxes and fees; incorporate blockchain signature and smart contract technology into the law.

Washington and New Hampshire, USA: The bill on the cryptocurrency ecosystem has been passed.

Delaware, USA: Believing that blockchain will play a broader role in its economy.

Illinois, USA: Using distributed ledger technology to “redefine the relationship between government and citizens.”

El Salvador: Starting from September 7th, Bitcoin will be used as the country’s legal tender.

Busan, South Korea: The head of the digitalization work at Busan Bank stated that “the government is changing its attitude towards cryptocurrency and has appointed a government agency to manage the industry”.

Goldman Sachs: A survey conducted by Goldman Sachs found that nearly half of its family office clients would like to add cryptocurrencies to their portfolios.

Tesla: In February announced the purchase of $1.5 billion worth of bitcoins, a total of 46,000 bitcoins were bought. Tesla CEO Elon Musk made it clear that “Tesla is very likely to resume Bitcoin payments” and revealed that another company, Space X, also holds Bitcoin.

Audi: Announced the release of NFT in cooperation with xNFT and others on August 10.

Ernst & Young: Ernst & Young is one of the first companies to explore the field of cryptocurrency and is committed to the development of the Baseline protocol, which uses the Ethereum public mainnet as a tamper-resistant state machine to record business data. In May 2019, Ernst & Young announced its Nightfall open source code for private transactions on the Ethereum blockchain.

PayPal: Announced the launch of a new service that supports cryptocurrency from the beginning of 2021; in November 2020, PayPal’s cryptocurrency transaction and payment platform for US users will be launched.

Microsoft: Microsoft provides blockchain services through its cloud computing platform Azure; it announced a partnership with Ernst & Young to use the Ethereum blockchain to pay Xbox game royalties.

In the end:

We cannot predict the future.

The British workers described by Marx seem to be living in such a hot water, but the Victorian England is the pinnacle of the British Empire. Both historically and the bottom people of many other countries in the world at the same time, they seem to be happiness.

A generation of Americans who grew up during the Great Depression showed little interest in stock market investment, but their generation was one of the most golden periods in the U.S. stock market.

But under the current trend, the blockchain has passed its born period. The ensuing supervision and questioning are like growing pains.

Young parents are always planning their children’s future, but whose future is really planned? Life is full of accidents, we are just gardeners, watering and irrigating, and expecting it to thrive.

Just like the blockchain.

The price of encrypted assets has fallen due to the new round of regulations in various countries. But historically, encrypted assets have a strong anti-fragility. After five huge waves, the yield is still higher than other mainstream investment products. In the long run, the supervision itself will also promote the more standardized and healthy development of the blockchain industry and encrypted assets. From the perspective of the real economy, the blockchain is continuously integrating with various industries to empower. The recognition of the blockchain by governments, enterprises and the public in various countries is gradually increasing.

“Life is a trial, investment is a practice.”

Table 1: From April 14th to July 20th, Bitcoin fell from its highest point to its lowest point

Source: Trading View

On April 14, 2021, Trading View statistics showed that the price of Bitcoin climbed to a maximum of $64,854, and market sentiment reached its peak!

Three months later, on July 20, 2021, the price of Bitcoin fell to $29,278.

During this period, it experienced the global computing power without China; The late arrival of governments’ supervision, the slogan of the world environmental protection movement, the continuation of the epidemic.

In this situation, it is difficult for us to keep clam. But we are responsible for our investors and their property. Just as Jiao Wei, the excellent fund manager of Yinhua Wealthy in 2020, said, if we only look at the market, we will also doubt whether what we have done is just the mistake of a small group of survivors.

The situation of crypto assets from 2020 to 2021

The encrypted assets in 2020 has also experienced a wonderful year like other capital markets. Bitcoin reach the highest prize which more than $29,800 on the last day of 2020, with a full-year return rate of 330%. Bitcoin futures contract open interest rose from approximately $2.7 billion to approximately $9.4 billion, an increase of 248.15%. The scale of the Bitcoin Trust was expanded to $17.475 billion.

At the same time, the ecology of Ethereum has also confronted with a major explosion. Not only it achieved a 2100% increase in the amount of total volume locked positions, but also the transaction volume has increased by 41.98% year-on-year, which is nearly three times that of Bitcoin.

Table 2: Ethereum exchange supply (yellow line)

Source: Messari

Based on the data on the chain, the entire crypto market in 2021 continues the trend of 2020. And the ecology of the entire blockchain is further improved: Polkadot, BSC, Solana, Flow, Near, Polygon, Layer2…Ethereum has emerged competitors, also, Ethereum itself is constantly iterating and updating. The number of active addresses is also increasing. There are constantly new tracks joining the world, and the integration with the old field is also deepening.

Table 3: Number of active addresses in Ethereum

Source: Messari

Traditional companies are entering the market, but it will take a while before they truly understand the blockchain world. It will take a while before the world truly understands the blockchain. Just as people around the millennium did not really understand the Internet, we know what it can do, but we don’t understand it.

This is our opportunity. Time is our friend.

This report will be divided into three parts:

In the first part, we reviewed the nearly ten-year history of Bitcoin from a historical perspective and sorted out 5 rounds of bull-bear conversion, trying to illustrate that Bitcoin’s characteristics are anti-fragile.

In the second part, we horizontally compared the yields of other assets in the same period, showing that those assets that we have traditionally reached a consensus on wealth are not actually better than encrypted assets.

In the third part, if we take the present as the starting point and draw an extension of the past trend to look forward to the future, we can see a deeper integration and mutual shaping of various fields and the blockchain. From this perspective, we believe in the future has come, but has not been seen.

Bitcoin’s anti-fragility

1.Five rounds of “bull and bear” markets for Bitcoin

In 2011, Bitcoin first rose from $0.3 to $31.5. After that, it fell from US$31.5 to US$4.77 in just one and a half months, a decrease of 85%. During the entire decline, there were seven days of Bitcoin’s single-day drop of more than 20%. The entire decline process lasted 3 months before it really bottomed out.

In 2013, Bitcoin’s rise exceeded 100 times again. In April of the same year, Bitcoin fell from $266 to $54.25 within three days, a decrease of 77.4%. After several months of adjustments, Bitcoin regained lost ground and reached new highs.

At the end of 2013, Bitcoin plunged 92.5% in 83 days. This is the largest plunge in Bitcoin’s history. After that, Bitcoin entered a bear market for several years.

In September 2017, the Chinese government halted cryptocurrency trading, and the price of Bitcoin fell 37%. Then in October and November, after regaining the lost ground and setting a new high, Bitcoin began a new round of plunge. It is from a high point of close to 20,000 U.S. dollars to a 70% plunge.

Table 4: The most recent wave of “bear market” in 2021

Source: CoinMarketCap

 In 2020, Bitcoin went from $5,200.37 in March to a peak of $64,854, a maximum increase of 17 times. In May 2021, due to high-pressure regulation, Bitcoin fell sharply, hitting $29,000.

2.The results of the “bull and bear” market

Bitcoin has experienced 5 plunges, and the price on August 4, 2021 was $37,763.88. Although it was down 40.16% from the peak period, it was still 2.37 times that of 1 year ago and 377637.8 times that of 11 years ago.

Table 5: Bitcoin price trend in 2013-2021

Source: CoinMarketCap

3.Bitcoin anti-fragility

Bitcoin, as the representative asset of the blockchain, has the characteristics of all blockchain assets, the most important of which is anti-fragility.

The vitality of the blockchain comes from openness and competition. For a decentralized autonomous system to be viable, it must be as open as possible, and lower the threshold as much as possible to allow more people to participate. The greater the number of participants, the fiercer the competition, the more dynamic the system, and the stronger the anti-fragility.

Blockchain can meet the real needs of users and gain support from users. Users can satisfy most users’ needs through mechanisms such as community governance and voting. The closer the connection with users, the more dynamic the blockchain, and the more anti-fragile.

Blockchain is a free market, a market that is decentralized to the greatest extent, and each individual can play games according to their own purposes. Therefore, the short-term market will have greater volatility, but it has strong anti-fragility in the long-term.

Comparison of crypto assets with other mainstream assets

Gold

Gold has risen 46.45% from 1,238.31 USD/oz in August 2010 to 1,813.5 USD/oz in August 2021.

Table 6: Gold price trend from 2010 to 2021

Source: TradingView

 Stock

Amazon’s stock price increased 27.23 times from US$117.89 in August 2010 to US$3,327.59 in August 2021.

The Nasdaq Composite Index (IXIC) increased 6.05 times from USD 2,114 in August 2010 to USD 1,4895.1 in August 2021.

Table 9: Amazon stock price trend from 2010 to 2021

Source: TradingView

Table 10: Nasdaq Composite Index Trend from 2010 to 2021

Source: TradingView

Comparison of return rates of major investment projects

In the current major investment projects, such as gold, stocks, etc., the yields of cryptocurrencies such as Bitcoin and Ethereum are much higher than other investment projects. Even if Bitcoin has experienced several huge rises and falls, it can still bring huge benefits, and it is tens of thousands to tens of millions of times that of other investment projects. Secondly, according to the Sharpe ratio of each item, Bitcoin has the characteristics of high risk and high return.

Note: According to the definition of MBA Think Tank Encyclopedia, the Sharpe ratio = (expected rate of return-risk-free interest rate)/standard deviation, where the risk-free interest rate is the 10-year Treasury bonds of the United States. The standard deviation method is to select the price of the last day of each year from 2010 to 2020 and find the standard deviation of these 11 prices.

Table 11: Comparison of return rates of major investment projects