BTW Research: Bitcoin: A new kind of alternative asset against global credit expansion

Specific Problems Bitcoin Trying to Solve Effectively
The evolutionary path of Bitcoin functionality and value connotation
Price performance of Bitcoin in each halving cycle
The outlook of Bitcoin in the next 12-48 months
Crypto assets and other development opportunities for Blockchain
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Bitcoin: A New Kind Of Alternative Asset Against Global Credit Expansion
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TABLE OF CONTENTS

Historical backdrop to global money system: Monetary regimes change
Monetary regimes can and do change, and they change more often than people realize. The current monetary regime is past its due date. The regime change from
Bretton Woods to the floating standard took five years.
We are in year 1 of a monetary regime change to another standard. Bitcoin and blockchain will be at once both fundamental technological layer and safe-haven asset
in the new monetary regime.
The Specific Global Economic Problems Bitcoin Solves

Bitcoin: new kind of alternative asset against credit expansion, as "Digital Gold”
Needs of new value storage carrier
•The government and/or
the centralized financial
system(s) fully control
personal privacy
information
•Sovereignty
overrides individual
property rights, and
the government can
freeze personal
assets at will
•The international
situation is tense,
trade frictions are
intensify, and cross-
boarder capital
controls are
tightening
•The world is in a deep
credit expansion, and
personal wealth
continues to
depreciate
Vicious
Expansion
Inflation
Capital
Control
Information
Monitoring
Financial
Sanctions
Censorship Privacy Decentralized Scarcity
Bitcoin
No entity can
seize wealth
from the network
or prevent
transactions
The Bitcoin
blockchain
system is not
related to
the fiat
currency
banking
system,
ensuring
privacy
The Bitcoin network
is distributed in tens
of thousands of
node ledgers and is
highly robust and
resistant to attacks
Bitcoin is hard-
coded to not
exceed 21
million total
Bitcoins and its
distribution
over time is
diminishing
Gold
Better anti-
censorship than
fiat currency but
its physical
nature makes it
difficult to resist
asset seizure
Gold has
identification
stamps with
numbers,
making
protect
privacy
difficult
Gold is widely held
by central banks
around the world
and has thousands
of years of
consensus history
Since gold
resources
outside the
earth are not
yet mineable,
gold currently
has the highest
scarcity of all
assets
Bitcoin VS. Gold

Asset perspective: Crypto assets and blockchain
Global nodes map of the Bitcoin network
• Scarcity
Bitcoin has designed a deflationary issuance mechanism at the code layer. The block
reward is halved every 4 years, and the maximum total supply is below 21 million. After
the third halving was completed, Bitcoin is as scarce as gold.
• Anti-censorship
Bitcoin is a global distributed P2P network, and the total nodes in the entire network
have exceeded 10,000. The large and wide distributed open network prevents Bitcoin
from being closed or censored.
• Security
The proof-of-work (POW) algorithm is based on enormously complex hashing problems
that are impossible to fake: the entire network computing power exceeds 100EH / s (1
trillion hash operations per second). No single entity could ever hope to have as much
hashing power.
• Transparency
Each transaction can be queried and verified in the blockchain, which ensures the
transparency of the transaction.

Technology perspective: Crypto assets and blockchain
Do you need to
share data storage
Data come from
different entities?
The input data
should not be
deleted or edited?
Sensitive identification
will be written into
business data
Blockchain provide set of data storage.
If you don’t need, please think of use:
email, online table.
Entities with write
permissions hard
to control of data
storage
You want to prevent
data operations log
from changed
You may find one blockchain
application scenario
If only one entity, please think of
database technology.
Exception: if audit needed.
Need
Yes
Yes
No
No
No
No
Not
Need
Need
Yes
No
Yes
Blockchain doesn’t allow data edit for
audit purpose. If you need to delete or
edit, Please use database technology
You cannot write sensitive confidential
information in blockchain for a long time,
such as user identification information.
Please use Encrypted database
Trust and data access control is
not a problem for Managed
database
If you do not need to audit these data
operations, a database is enough.
Bitcoin is a financial application of blockchain technology, and its transfer data based on
distributed ledger technology has a native high confidence on the blockchain. In addition to
the transaction records applied to the blockchain‘s assets, the blockchain’s data processing
has not reduced the cost, nor increased the data confidence. At this stage, there is no solid
application scenario.

Bitcoin's endogenous value ：2013-2016
The Evolution Of Bitcoin Functionality And Value
2013-2016 Digital cash and a new financial system
Bitcoin's unique design rules have created the various attributes of "electronic cash": scarcity, durability, verifiability, divisibility, substitutability, and high liquidity.
Bitcoin, as a brand-new financial system, is independent of the bank payment system and gradually becomes a part of global payment.
Blockchain technology of Bitcoin is regarded as an important FinTech technology, which has been widely recognized and researched by economists, central banks
and universities around the world.
2013-2016
Digital cash and a new financial system
2017-2018
Investment and
financing model
based on smart
contract
2018-2019
Practical asset
allocation and
value storage
tools
2020
Digital gold against
quantitative easing
and inflation

Bitcoin's endogenous value：2017-2018
2017-2018 Investment and financing model based on smart contract
With the development of smart contract technology, ICO (Initial Coin Offering) model with ETH and BTC has become the main financing method in the blockchain
industry.
Proportion of financing methods of blockchain companies
Proportion of global fintech company financing regions
2013-2016
Digital cash and a new
financial system
2017-2018
Investment and
financing model based
on smart contract
2018-2019
Practical asset
allocation and value
storage tools
2020
quantitative easing
and inflation

Bitcoin's endogenous value ：2018-2019
2018-2019 Practical asset allocation and value storage tools
• The compliant investment channels and products represented by Grayscale are gradually recognized by institutional investors, and Bitcoin is regarded as one of the major
asset allocations for value storage.
• Through the compliance futures exchanges such as CME and Bakkt, the trading volume and positions have gradually increased, and the effect of institutional compliance
investors has been obvious.
2013-2016
financial system
2017-2018
Investment and
on smart contract
2018-2019
Practical asset
storage tools
2020
quantitative easing
and inflation
Grayscale comparison of new AUM in 2019 and 2013-2018
CME Futures Exchange positions and trading volume

Bitcoin's endogenous value ：2020-Future
2020-Future Digital gold against quantitative easing and inflation
• Against the backdrop of global quantitative easing, central banks in various countries have expanded their balance sheets seriously, non-financial institutions have high
leverage, and overall inflation has risen.
• Because of its unique supply model and anti-fragility, Bitcoin has become an important tool to fight inflation.
BTC appreciation, RMB depreciation against the US dollar
Global central bank balance
sheet expansion
Non-financial sector
liabilities rise
2013-2016
financial system
2017-2018
Investment and
on smart contract
2018-2019
Practical asset
storage tools
2020
quantitative easing
and inflation

Bitcoin: new kind of alternative asset against global credit expansion
• Changes in the global macroeconomic and monetary system have brought about the evolution of the properties of encrypted assets such as Bitcoin, driving the superposition of
the properties of Bitcoin risk assets and non-financial assets;
• According to Merrill Lynch clock theory, the current macroeconomic environment transitions from an overheating period to a stagflation period, and investors shift from holding
commodities and stocks to holding cash and commodities;
• Bitcoin has both cash and commodity attributes. It is a better choice for institutional investors to against global credit expansion in the future stagflation environment.

Sovereign leaders and central bank policy makers continue to pay more attention to digital assets and
blockchain technology
Donald Trump
President of USA
Jerome Powell
Chair of the Board of FED
Xi Jinping
General Secretary of the Communist Party of China
2019 Q2 2019 Q3 2019 Q4
I am not a fun of Bitcoin and other
Cryptocurrencies, which are not money,
and whose value is highly volatile and based
on thin air. Unregulated Crypto Assets can
facilitate unlawful behavior, including drug
trade and other illegal activity
Libra raises many serious concerns
regarding privacy, money laundering,
consumer protection, and financial stability.
The project can not go forward until these
are addressed.
The integrated application of blockchain technology
plays an important role in new technological
innovations and industrial changes. The blockchain
industry has huge development potential and
application prospects. The important role of integrated
application of blockchain technology in promoting new
technological innovation and industrial transformation
cannot be underestimated. It is an important
breakthrough in independent innovation of China's core
technology.

The correlation of Bitcoin and asset allocation portfolio optimization
• Bitcoin and other digital currencies have low correlation with other class of assets;
• By adding bitcoin allocation to the asset portfolio, you can effectively optimize the portfolio return and increase the Sharpe ratio.
Adding Bitcoin to traditional asset allocation can effectively optimize
performance

The main investor of crypto assets such as Bitcoin is Family Office.
• Since 2014, many crypto asset management hedge funds have begun to appear in the market. 2018 and 2019 are the main established years and the size of
hedge funds has doubled;
• The main investors of these hedge funds are family offices (48%), high-net-worth individuals (42%), and the rest are foundations, venture capital funds or FOFs.
BTC price VS. established number of crypto asset hedge funds The composition of crypto asset hedge fund investors

First halving period （Year 2009-2012）
During the first halving cycle in 2012, the price of Bitcoin rose from $ 11 to a maximum of $ 260 at a full 23.6 times increase.
July 11, 2010 - Bitcoin was reported by the famous news website Slashdot,
the number of Bitcoin users increased rapidly; 5 days later, the price of
Bitcoin increased from 0.008 USD to 0.08 USD, and the price increased 10
times
February 9, 2011 - The world's first bitcoin trading platform Mt. Gox's bitcoin
price reached $ 1
June 19, 2011 - hackers hacked into the computer of Mt.Gox auditor,
causing the value of bitcoin in the system to drop sharply. The value of
bitcoin on the Mt.Gox platform fell to only a few cents overnight, and the
drop was close to 99.%
November 28, 2012 - the 210,000th block was mined, the first time in Bitcoin
history was halved, and the block reward was reduced to 25 BTC.

Second halving period（Year 2013-2016）
Bitcoin price performance in each halving cycle
During the second halving cycle, although the price of Bitcoin fell by 45% from the
highest point in 2013, it rose by 300% from the lowest point ($ 102) to around $ 460.
November 20, 2013
Yi Gang, deputy governor of the
People's Bank of China, stated that
"people can freely participate in the
bitcoin market." The price of bitcoin
then reached a peak of $ 1132.26,
exceeding international gold prices
for the first time.
February 10, 2014
Due to the loss of all 744,408
bitcoins in the Mt.Gox transaction,
the bitcoin price crashed to $102, a
drop of 80%; on February 25,
Mt.Gox filed for bankruptcy
protection.
May 2015
Barry Silbert launched
Bitcoin Trust Fund:
Grayscale
July 2015
Vitalik Buterin launched
Ethereum, which supports
decentralized applications
and its issue price was $ 3.
July 9, 2016
Bitcoin ushered in the
second halving in history,
and the block reward
was reduced from the
previous 25 bitcoins to
12.5.

Third halving period（2017-2020）
Bitcoin price performance in each halving cycle
Bitcoin halved for the third time on May 12, 2020. The price of Bitcoin has risen from
$3800 to $9700 with an increase of up to 255% at this study release.
March 3, 2017
Bitcoin price reached $ 1238.11
and a record high of $ 2980 in
June, more than double the
price of gold
September 4, 2017
The People's Bank of China and
7 ministries and commissions
issued a document banning ICO,
and bitcoin fell by 35% within a
week.
October 31, 2017
The Chicago Mercantile
Exchange announced bitcoin
futures contracts will launch in
2017Q4 and is awaiting relevant
regulatory review.
December 7, 2017
Bitcoin exceeded US $ 19,000
and its market value exceeded
US $ 288.6 billion.
Beginning of 2018
a new round of digital currency bear
market officially began, and Bitcoin
continued to fall from a high of nearly
$20,000; the lowest point on December
13, 2018 fell to around $3,000 US with
an 85% drop.
April 1, 2019
the price of Bitcoin suddenly
skyrocketed to $ 5,000; on June
20, the price of Bitcoin reached
its highest point since the bull
market in 2017, at $ 14,000.
In 2020
the market is actively due to the
third halving of Bitcoin, and the
price exceeded $10,000;
On March 12th
Bitcoin suffered a black
Thursday, a single day drop of
52% and the price was jumped
from $7960 to $3800, the
highest in history;

Short-term Perspective
The Outlook Of Bitcoin In The Next 12-48 Months
• Bitcoin's suitability for retail online transactions helps its short-term volatility because it is profitable. For traders, Bitcoin is a unique and extremely risky tool.
• Bitcoin's attractiveness to traders, coupled with its lack of liquidity and the availability of leveraged trading, increase the short-term volatility of its prices.

Mid-term Perspective
Looking at Bitcoin within a time frame of months and years, the biggest drivers of price changes are mining costs, demand from large institutional buyers and halving
events. The demand for bitcoin of this size usually comes from institutional buyers, wealthy individuals, family offices, and those wishing to access cryptocurrencies.
S2F model expected price
Bitcoin Price

Long-term Perspective
Bitcoin is scarce and difficult to confiscate. The total supply is 21 million.
However legal credit currency as alternatives are generally diluted and with
inflation.
As an alternative asset, bitcoin can better hedge the global wave of
quantitative easing that has arrived. In 2020, bitcoin can be compared to gold
around 1977. Due to the natural devaluation of fiat currency, it will surely
become a powerful weapon against credit expansion in the new era.

The market value of stable coins continues to rise, and the network effect of the head platform is further
intensified
Crypto Assets And Other Development Opportunities For Blockchain
USDT will still occupy the dominant position in the stable coin market, and its
application scenarios have gradually beyond the digital asset industry and begun
to exercise a wide range of trading media functions. Compliant stable coins, such
as USDC and PAX will eventually compete with the central bank's digital currency,
and become less like "cryptocurrency", but like a general transaction ledger.
The trading platform has been involved in mining and other industries from the
beginning and has occupied a significant market share by virtue of its capital
advantage; due to its platform effect, products such as cloud computing power
and computing power contracts are expected to be gradually promoted in
2020, and the mining industry will be further shuffled .

Blockchain technology upgraded by Ethereum 2.0
In July 2020, ETH2.0 will start a long upgrade process with the beacon chain going online.
Sharding is a fundamental change to the way Ethereum operates. Existing smart contracts
cannot simply enter the sharding network. The transition will be a painful process for several
years. We expect that a considerable part of the computing power will be split during the
Ethereum consensus switching process, which will bring huge price fluctuations in the
secondary market. In the long run, ETH2.0 is the only way for the network to become the
world's settlement layer.
Phas
e
Theme Description
0
Beacon
chain
The beacon phase may start in the short term. It has been postponed in the past, but it now
appears to be scheduled to start in July 2020. This stage will consist of a proof-of-stake system
without much other content, so the network can be considered as more test networks, although
the tokens involved will be real Ethereum. There are many aspects of the proof of stake system
that need to work, such as:
•Manage stakeholders
•Manage pledged funds
•Random number generator to help select block producers and pledge committees
•Pledgers vote on the entire proposal
•Award rewards or penalties to stakeholders
1
Shard
chain
The shard chain will initially deploy 64 shards. At this stage, the network is again designed to be
highly experimental. Phase 0 aims to test the basic proof of the equity infrastructure without
any other major economic activities, while phase 1 aims to test the basic sharding model. In this
stage, there are basically 65 block chains running in parallel, the beacon chain existing in stage 0
and 64 new shard chains. There will be two ways of communication and reference between the
beacon chain and all 64 shards.
2
State
execution
At this stage, it is expected that lots economic activities (excluding mortgages) and smart
contracts may be carried out on the network. Sharding will no longer be a basic data container,
and will begin to be similar to Ethereum 1.0 features, such as virtual machines and smart
contracts. The specifications at this stage have not yet been finalized, and a lot of development
work is required to prepare the network for the second stage.

Regulatory compliance, Grayscale Capital and ETF issuance
Institution Policy outlook
FinCEN
FinCEN is likely to see more than one lawsuit against ICOs, digital asset trading platforms, and other industry participants violating bank secrecy laws in 2020.
That the industry has not yet seen such litigation does not mean that institutions such as FinCEN and DOJ are not preparing for this. The prosecution period for
violations of the criminal bank secrecy law is five years, and the prosecution period for civil violations of the bank secrecy law is six years, so FinCEN and DOJ
have enough time to liquidate the offenders.
SEC
The SEC has been active on the front line against ICO all year round. The SEC kicked off in 2020, and its lawsuit against Gram, a telegram coin, led the New
York Federal Court to rule that the issuance of GRAM tokens violated U.S. securities laws and should not be exempted. The court specifically ruled that, taking
into account the economic reality in the Howey test, the court held that, in the context of the fundraising plan, reselling Grams to the secondary market was
also part of a violation of US securities laws. Gram tokens could not be delivered and the TON project failed. In 2020, we are expected to see the SEC legally
liquidate many projects that have raised funds from US investors, and projects such as Dfinity and IPFS will face pressure.
CFTC
CFTC did not publish any unilateral policy guidance in 2019, but issued a joint declaration with the SEC and FinCEN to remind digital asset participants that
anti-money laundering and anti-terrorist financing belong to the scope of bank secrecy laws. In 2020, the CFTC may be like the SEC, showing more muscle in
bitcoin and digital asset-related price manipulation and initiating more lawsuits.
FINRA
FINRA's supervision of the digital asset industry mainly cuts in from the perspective of brokers. For FINRA, if the broker does not have a custodian license for
compliance or does not exercise complete control over digital assets in the OTC transaction, the transaction may violate consumer protection regulations. At
the same time, FINRA and SEC expressed concern about the brokerage custody ability of the current digital asset ecosystem. In 2020, it is expected that both
FINRA and SEC will conduct stricter supervision and industry guidance in the field of broker custody.
IRS
On Tuesday, March 3, 2020, the US Internal Revenue Service (IRS) held a virtual currency summit open to invitees at the IRS headquarters in Washington, DC.
Invitees include stakeholders in the crypto community, such as exchanges, crypto tax software companies, tax practitioners, and crypto advocacy groups. The
IRS believes that bitcoin is non-anonymous and traceable, classifies cryptocurrencies as “property”, and proposes to establish a central custodian agency for
cryptotax data. The taxpayer on the 2020 tax form needs to directly answer whether the digital asset was purchased in the previous fiscal year.
FATF
The new regulations require that relevant service providers need to attach corresponding customer information when transferring between each other, thereby
forming a flow chart of assets so that the regulatory agency can track them. FATF “supervises VASPs like commercial banks”. In fact, FATF's supervision of
VASP has indeed reached the level of traditional financial institutions. FATF's recommendations may have a much greater impact than the US SEC or any other
regulatory agency has so far, and it is likely to be one of the biggest threats facing the crypto industry. FATF's regulatory requirements for VASP have reached
the same level as traditional financial institutions, which may further promote VASP compliance registration. In countries lacking supervision, it may promote
the implementation of corresponding licensing and registration systems.
Institutional investors represented by Grayscale Trust
can invest in products with a high probability of passing
the review in the new halving cycle.
As the regulation of Bitcoin becomes clearer and more regulated, institutional investors will be able to invest large amounts of money into this asset class,
thus spawning a new round of bull market.

There are almost 200 currencies controlled by central banks and
governments, but there is only one mathematical currency today,
and that is bitcoin. We are going to build more of them.
-- Andreas M. Antonopolous

BTW Research: Bitcoin: A new kind of alternative asset against global credit expansion

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