Why is Currency Profit Taking Limited in Range (Why is the Currency Market Short-term)?

Why is currency profit taking limited in range? We know that the trading rules in the cryptocurrency market are “free transaction, limit order”, but in fact, it is not always the case. Generally speaking, for the profit or loss of a currency, it cannot be executed according to one’s own way. And if you want to place a bet through a certain leverage (such as when the spot price is below $1), you need to set a certain amount of funds in the order and require that the funds not be transferred to the user within 24 hours before expiration; if this condition is not met, the user’s position may be liquidated and unable to open or close positions. Therefore, when there is a large amount of arbitrage in the market, some arbitrageurs often choose to put their positions into a high-risk price first, sell them quickly, and make a profit. This can lead to such situations.

However, fundamentally speaking, many small-cap encrypted assets adopt different strategies for various reasons. For example, Bitcoin and other virtual digital currencies often bring certain returns to the market with high premiums, but it is difficult to control these yields in practical applications, and therefore, it is unacceptable and unwise for ordinary investors. On the other hand, because many financial products are supported by cash flow and exist underneath exchanges, most people use a term: matching the buy and sell sides of the transaction through over-the-counter lending, which reduces the liquidity on the platform.

However, it is worth emphasizing that although the trend of the mainstream digital asset market is similar to other investment products, the biggest difference lies in the fact that the buying cost for retail investors in traditional capital markets is high and difficult to predict. In the current application and implementation process of blockchain technology, more and more institutions have begun to use digital currencies as payment tools to achieve their goals.

For example, in December 2017, SBI Holdings, a major Japanese securities firm, announced the official launch of the world’s first regulated digital currency futures trading platform, BitMax, which allows customers to directly purchase digital currencies and provides margin settlement services. Subsequently, Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC), stated that he had sent letters to all eligible fund managers advising them to strictly comply with the Bank Secrecy Act to effectively protect their accounts from hacker attacks and potential loss. At the same time, CoinShares, a Canadian fund company, recently added an investment plan for Bitcoin and other digital tokens.

Why is the Currency Market Short-term?

Editor’s note: This article is from Caiyun Blockchain (ID:cybtc_com), Author: irishash, authorized to be reproduced by Odaily Planet Daily.

Why is the currency market short-term? One explanation is that long durations are common for legal digital currencies. In history, we can divide one or more dates into three periods, which are 1 to 12 months and 6 months to 3 years. However, both of these periods have certain lag, delay, and unpredictability. If this period is 0, it means that you do not have enough time to make transactions.

So, from a literal point of view, this period is “short-term” or “medium to long-term”. Simply put, it refers to the price of your assets when it has already fallen below the target value on a certain day. Therefore, this expectation is too high and cannot be executed for investors. Because of the events that have occurred in the past few weeks, some investment strategies have become more cautious. Therefore, during this period, “coins with a longer time frame” is actually a very safe investment strategy-which means that as long as investors who hold bitcoins for one or two years are willing to use the funds, they can continue to hold all bitcoins they hold. “These are all to prepare for specific risks, to ensure that they can withstand volatile market conditions.”

When there is a large amount of cash influx in the market, there is usually an arbitrage opportunity, but because it takes a lot of cost and time to complete the transaction, this demand often arises. Generally, in a situation where both parties in a transaction agreed, they will sell the purchased bitcoins and exchange them for another type of token (the so-called stablecoin). This will not deplete liquidity and cause speculative bubbles.

In any case, people are talking about a simpler concept: “Bonds (Debt)-Dollar/Yen” (division of interest rate differential). If the bond is essentially a stock, its yield will be higher (similar to gold), but in real life, it may only be around 20% (such as 25%). For example, if a company sells securities through issuing dividends and the stock price rises significantly, the company will also purchase more dividends to pay interest; on the other hand, if a commercial bank only provides equities, it does not need to pay dividends to shareholders.

In the traditional financial field, borrowers must deposit collateral to the clearing institution and bear corresponding default losses (such as loans). In China, bonds belong to the type of guarantee tools. Therefore, it is not important for credit rating agencies to assess whether a company has credit problems. In addition, if negative news occurs, it can also be audited according to legal regulations and must comply with relevant national regulations. Currently, most bond products are openly sold and record all information as well as customer needs and their financial status.