Bitcoin recently experienced a significant rebound, which brings to mind a very important topic: liquidity.
Let's start by discussing the real estate market.
We know that most houses have dropped significantly over the past two years. If you have a house in such a market, it is very difficult to sell.
Many people list their properties and wait from the beginning of the year to mid-year, without any inquiries. If a neighborhood has 300 listings, it is very difficult for him to break through the competition among these same-type 300 listings.
There’s no other way. If most homeowners are anxious to sell, they might directly drive the prices down. The more they list, the lower they go, and eventually, they are forced into a psychological lowest price. In fact, the real transaction price is still far from the listing price, but everyone is unwilling to roll in the open and pretends to continue waiting aimlessly in the most miserable market.
The core reason: too many listings, too few buyers, and the market lacks liquidity.
One day, suddenly, the government issues policies, such as lifting purchase restrictions, reducing taxes and fees, etc., in short, it gives hope to the listed property owners—
The government is trying to inject liquidity into this market that lacks liquidity.
Now, as a property owner, facing 300 houses all listed, do you think you can sell at a higher price? Obviously not possible.
If you raise the price, and the other 300 listings choose not to raise their prices, they will definitely be the first to sell.
So in this situation, even with liquidity injected into the market, sometimes it does not restore overall market liquidity. It's like needing a whole swimming pool of water (to satisfy the transaction volume of 300 listed homeowners), but you are only waiting for a few cups or even just one cup of water.
It is of no use.
Therefore, in the face of benefits, you not only do not raise prices, but you also lower them, with the sole purpose of making a deal and getting out.
In this situation, a strange phenomenon occurs: in the face of short-term benefits, the market actually declines?
Currently, in most second-hand housing markets across the country, faced with this benefit stimulus, apart from core areas and some luxury homes, most second-hand houses are traded at price for volume, without a sustained warming trend.
Corresponding to cryptocurrencies, there often appears a phase of market gloom, but not yet at the bottom, which is suitable for inducing buying for phase-based selling.
What would happen if the government continues to issue benefits in the real estate market?
For example, issuing a policy to reduce taxes and fees for second-hand houses by 50%?
You can also foresee that if you are a property owner listing your house, you would not choose to raise the price to sell. Faced with the same 300 listed houses, you would still lower the price because you feel that this benefit is not enough for liquidity recovery.
What if we continue to issue benefits, such as an 80% reduction in taxes for second-hand houses, or complete exemption?
To digress, last year when the A-share market was rescued, the government continuously issued benefits, including lowering the stamp duty. Ultimately, there were more than a dozen benefits to rescue the market, in fact, hoping that stockholders would use their own money to add liquidity to the market rather than the government spending money to add liquidity.
In the face of this A-share benefit, there is essentially no sustained market trend, so the market always surges on the same day and then crashes the next day, continuing to search for a lower point—there is some liquidity, but it is insufficient.
The national team needs to get involved personally.
Continuing to return to the original topic, many benefit stimuli, if they only guide both bullish and bearish sides to add liquidity, the trend of the entire cycle is difficult to reverse. It requires moving from points to lines, and from lines to surfaces, to view the truly massive liquidity pool.
In other words, we need to find the roles and factors that can truly add significant liquidity to this pool.
To give an absurd example, buyers in the real estate market provide liquidity for selling houses. The benefit only stimulates both buyers and sellers. What if the government also participates? A buyer purchases a house, and the government subsidizes a 10% discount.
You will find that the current liquidity market has truly been elevated.
Only in this situation, facing 300 houses, does your choice to raise prices have a fundamental basis because the rules have changed.
Of course, the more practical situation is that the government stimulates the economy, increases wage income, and enhances the liquidity of sellers and buyers at the financial level, which is the only way for the market to potentially regain vitality.
However, the current situation in the real estate market is quite complicated. Even if the economy recovers, the land finance will sell more new houses, causing more second-hand house inventory. The decline in demographic dividends is continuously extracting liquidity from the market.
It is like a pool where one pipe adds water, and another pipe lets water out; the question is when the pool will be filled.
Corresponding to the cryptocurrency market, retail investors buy coins while the project parties increase issuance. The question is whether retail investors have more money or project parties have more coins.
Let's get back to the topic.
Currently, the liquidity in the cryptocurrency market is insufficient; we need to think: who is adding liquidity to the market?
Is it Binance issuing a benefit, and you continue to recharge 1WU into it after being liquidated? Or is it that ETH is upgraded again, fully entering a deflationary era?
You will begin to distinguish whether the future benefits are about reducing taxes and fees in the real estate market or whether the government will subsidize you when buying a house.
You will pay attention to what major benefits could add more comprehensive liquidity to the market in the future.
Just like in 2020, the Federal Reserve printed money wildly and lowered interest rates drastically; the market was indeed flooded with too much enthusiasm with nowhere to go.
This hot money is bouncing around everywhere, some running into US stocks, some into the real estate market, and some into cryptocurrencies. Therefore, the bull market of 2020 is the US adding liquidity for the whole world, leading to the rise of investment targets across the entire market.
Currently, due to a lack of liquidity, both buying and selling are minimal, making the market prone to violent fluctuations.
Once the liquidity machine is turned on, it requires a period to continuously add liquidity to the market for there to be sustained increases or even rebound trends; otherwise, it will be difficult to maintain with just a few small gains.
If goods worth 1 million can be sold, and goods worth 10 million can be sold, what about 100 million or 1 billion? Without liquidity, the big players cannot complete the selling process.
If you cannot judge where the market sentiment is headed, you can check the Bitcoin fear index or observe the liquidity situation of most altcoins in the market.
A market without liquidity is a market worth paying attention to. Often, the popularity has already significantly declined, so one can either wait and see or start investing early. Due to frequent violent fluctuations, swing trading is also worth considering.
There are no rises or falls without reason; behind them are the games of future expectations.
Investment is to endure from a period of no money to a period of having money, from a market full of bad news to a market where bad news has been exhausted and good news is continuously released—a market full of crazy liquidity.
This Friday at 18:00, I will launch the first online public live broadcast in 25 years, discussing where this year's market opportunities are, whether this round of cycle has ended, and if there are still bulls. Don't miss it!!!