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NewBloc: A look at the aftermath of Bitcoin from the silver market

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Expect further gains to follow as money from the sidelines runs in.

NewBloc: An Analysis of Bitcoin's Aftereffects from the Silver Market

Author: New Bloc Strategist Barry Bloc has 5 years of experience trading in the FX gold market.

Now people entering in 2021, has reached more than a month of time, remember last year at this time of financial markets, risk assets have crashed due to liquidity squeeze, is encrypted in the money markets after 312 incident, finally under global war of crude oil, crude oil futures market is also crowded warehouse phenomenon happens, the final part delivery contract prices for crude oil fell to $40 a barrel, a new low in the history of the price of crude oil.

Under the background of global central Banks and finance big water, 2021 market presented the extreme phenomenon, still at the beginning of this year to open, the first U.S. retail investors through community opinion, attract institutional means of short squeeze GME short, make its shares rose up to 20 times, then encrypted product magic dog in the world currency, also the message within 24 hours and the emotional side, 10 times the rally, eventually spread to the public opinion in the silver market, silver breakthrough 30 dollars an ounce.

In early February 2021, a popular Reddit post with strong market-leading content led to a flurry of ideas among retail investors who eventually read the article, and futures markets began to see a flurry of silver long orders.

It mainly shows that baiyin field, there are several big investment Banks hold much silver short positions, and excessive leverage, as long as retail investors on the spot market buying silver in great quantities, to the delivery due to hold short positions in the investment Banks did not object to do delivery, has to pan sides jersey and can't find his rival, similar to last year's oil thus happened to squeeze.

Last year, crude oil fell as low as -40 US dollars per barrel, mainly because financial institutions did not move their stocks in time before the delivery of crude oil futures, and the global epidemic outbreak caused the liquidity and demand to be weak due to the blockade of various countries. When a position is moved, it becomes unprofitable for traders to hold on to crude oil because demand is weak and the market is close to saturation, so there is no counterparty in the futures market, and a position squeeze occurs, causing the futures price to fall to -$40 per barrel.

In the event of a squeeze, it is more important to control the gap in the cash market rather than just speculate in the futures market. The target of those who call for avoiding short sellers is not the futures market, but the Silver ETF-iShares Silver Trust (SLV), which is the largest Silver ETF in the world today. It is based on Silver and aims to track the price trend of spot Silver. It belongs to commodity ETF and physical ETF.

In other words, the callers are creating a physical silver gap. When the delivery time comes, the short sellers have to trade the physical silver because they don't have the physical silver, and because of the physical shortage, people will value the physical silver in their hands more, and the market is prone to a squeeze event.

Unlike last year's oil squeeze, silver is not as extreme as last year's oil squeeze, as investors who hold a lot of physical silver in the market tend to sell as soon as the price is high enough.

Of fundamental analysis is derived from previous years, silver has indeed been belongs to supply exceeds demand, combined with increased investment demand rising industrial demand, to reach the silver prices today, but since the epidemic outbreak last year, the factory's determination to keep factories and workers idle and the federal reserve, the Treasury a lot of water, higher inflation expectations, led to the precious metals investment demand is higher (pictured), in the end because of the above mentioned reasons in retail appeared when begin to buy real silver silver shortage phenomenon.

Bullionstar, the precious metal retailer, also recently reported a surge in demand for silver bars and coins, with 25 customers buying silver for every one selling it in recent days, compared with two or three customers in normal times.

Bullionstar says orders, calls and emails from customers have all increased exponentially, to about 10 times normal levels. Not only Bullionstar, but many dealers around the world have sold out of their physical silver bars and coins. The company's supply has been unable to keep up with demand and has had to raise the physical silver premium significantly.

For example, the company is offering a 29.4 percent premium on silver Canadian Maple Leaf coins. The premium for U.S. silver Eagle Dollar is as high as 46 percent, more than double what it was just a few days ago, and as the supply of physical silver continues to deplete rapidly, sellers are finding it increasingly difficult to price and set a premium.

Almost all online precious metals dealers in North America are no longer able to offer most silver products and have sold out. At other major precious metals traders such as Kitco, Apmex or Moneymetals, the story is the same: most are sold out!

There is already a local shortage of physical silver, but the global stock is large.

Futures markets reflect at the end of the contract price expectations, not directly said, physical supply and demand, so we think, on February 1, silver spikes, reflect the market after the silver to be bought on Saturday before the back structure, the arbitrage capital will be bought in the futures market to sell on the spot, and then on February 2nd, after market calm, silver library is still in the high, middle is still 'structure, then sell futures to buy stocks or of the set of' structure, more speculation and arbitrage will slump back in place.

So whether the market in the end will happen long squeeze?

In crowded warehouse is the key to make silver gap formation and position in the futures market regulations, by the time the delivery date due to sharply reduce liquidity, forcing short speculators can not rough storehouse, and because the backwardation, a silver also don't want to lower than the spot market price in the futures market to sell silver, this makes the short positions it is difficult for the current price find opponent positions, and crowded.

At present, due to the high and increasing inventory of silver, the contango of silver is further deepened, and the short position on futures is increased. In 2020, the price of silver will rise, which is accompanied by the rising investment property of gold.

Goods and investment attribute difference comes from the biggest, when silver prices, commodity attribute makes along with the increase in the price of silver and appear a large number of selling, and investment properties is when silver prices make more people to invest in silver, silver demand increases, commodity in investing attribute opponent disc, will happen when the investment is greater than the commodity attribute crowded warehouse, 2010-2011 silver rapid rise is constant crowded warehouse, silver prices caused by the rapid upward.

Vaccination in 2021, another round of fiscal stimulus, biden will promote economic recovery and recovery also increases, the industrial demand for silver, silver can reduce inventory, makes' structure flat, and the investment demand will also with inflation rising get promoted, and under the background of the speculative atmosphere is so thick, investment demand may continue with biden fiscal stimulus to the ground.

The real spike in silver prices may have been driven by a stampede from retail investors that would have boosted investment demand.

Why short squeeze is so prevalent

On the one hand, the Federal Reserve and the public finance released a large amount of water, which led to the investment boom in the background of continuously new financial assets; on the other hand, the Federal Reserve released a large amount of water, which led to the economic "K" -shaped recovery, that is, the upper half of K is the financial sector, and the lower half is the real economy.

The financial sector can be seen directly from the stock market, while the real sector can be seen from the number of bankruptcy filings in the chart below, which is where most of the current employment comes from. The widening gap between the rich and the poor caused by the "K" type recovery gradually antagonized different classes, that is, it was easy to arouse the resonance of retail investors through some hate speech, which was easy to be used by some institutions to beat the rival offer and make profits.

For the subsequent impact of Bitcoin

Type "K" of economic recovery, and further widen the gap between rich and poor, the real economy return on investment is low, a new fiscal if fall to the ground, biden government is expected to further enhance the market speculative atmosphere, under the background of expanding money will attract a significant number of otc money a piece of admission, the fiscal if fall to the ground or in other words, biden will have quite a number of funds into the financial sector rather than consumption, this may make fiscal stimulus effect decreased significantly, or for the financial markets will enter the most crazy time.

For COINS, pushing the currency rise at present is mainly speculative, under Joe biden, another round of fiscal stimulus is expected to add to the speculation atmosphere, and make money effect of digital currency extended continuously, and the yield is very high, you have to show how rich, it has great attraction for people outside, outside capital entry finally.

The fact that Bitcoin now has a certain global presence, even for those who have never touched the cryptocurrency industry, is great for Bitcoin, so expect it to go up further as the money from the sidelines runs in.