Having suffered a brutal year so far, Bitcoin prices have been rebounding over the past month with mum and dad investors pouring money into cryptocurrencies.
Bitcoin prices gained almost 20% in July, to almost $34,000 from below $28,000. Even so, the largest cryptocurrency has tumbled by two-thirds from November 2021’s all-time high.
Fueling Bitcoin’s recent rally is the token’s correlation to stocks—especially tech stocks—which have surged amid an easing of investor worries over interest rate hikes from the Federal Reserve. The tech stock-laden Nasdaq surged 12% to notch its best July performance on record and the biggest one-month gain since April 2020.
Yet correlations aside, there have to be investors pouring money into digital assets in order for Bitcoin prices to go up. And it has been retail traders—particularly smaller ones based in the U.S.—that drove strong demand for Bitcoin in July, and continue to push prices higher in August, according to a number of market indicators.
“Retail are buying Bitcoin at the fastest rate in history,” Marcus Sotiriou, an analyst at digital asset broker GlobalBlock, wrote in a late July note.
One sign that U.S. investors are particularly crypto-hungry is the Coinbase Premium Gap, which measures the difference between Bitcoin prices quoted on Coinbase Global (ticker: COIN) and those on Binance, the world’s largest crypto exchange. Since Coinbase is mostly popular in the U.S., the gap—tracked by data firm CryptoQuant—can be read as an indicator of how crypto demand among American investors stacks up relative to those in the rest of the world.
As recently as July 12, there was a $35 per Bitcoin discount on Coinbase compared to Binance, but as the month wore on the discount turned into a premium for the first time in months. By July 31, investors on U.S.-based Coinbase were paying a $20 per Bitcoin premium to scoop up the token, the highest premium since the crypto was changing hands around $57,000.
Other evidence supports the notion that it is primarily smaller traders who have swung in to buy Bitcoin while it has been trading at its lowest point since 2020. The total supply of Bitcoin in the largest 1% of accounts decreased to 17.32 million from 17.34 million across the month of July, according to crypto market intelligence firm Messari. By contrast, the supply of Bitcoin in accounts with more than $14,000 increased from 18.2 million to 18.4 million in July.
“The 90-day change in Bitcoin addresses with less than 1 coin (typically retail) is at record highs. The last time it was close to this high was in 2018 when Bitcoin peaked at around US$20,000,” noted Sotiriou from GlobalBlock. “The fact that a similar rate of accumulation is happening now after a 70% drop demonstrates conviction from retail holders in Bitcoin’s long-term value.”
The same trend is mirrored in the crypto derivatives market, which accounts for two-thirds of exchange-traded digital asset volumes, according to CryptoCompare. In the U.S., Bitcoin futures are particularly popular among institutional investors, because these products are traded on the CME and regulated by the Commodity Futures Trading Commission.
The CME offers two types of Bitcoin futures: A standard contract which is valued at 5 Bitcoin, or more than $165,000 at current prices; and a micro contract valued at 10% of 1 Bitcoin, or about $3,300. The former contract is more popular with institutional investors, while the latter is geared more towards a retail crowd.
The open interest of standard CME Bitcoin futures—which refers to the total number of outstanding contracts—rose from just 13,466 at the beginning of July to 13,480, while the open interest among micro Bitcoin futures jumped from 15,998 to 24,960.
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Competitive pressure and creativity have made Chinese-designed and -built electric cars formidable competitors
China rocked the auto world twice this year. First, its electric vehicles stunned Western rivals at the Shanghai auto show with their quality, features and price. Then came reports that in the first quarter of 2023 it dethroned Japan as the world’s largest auto exporter.
How is China in contention to lead the world’s most lucrative and prestigious consumer goods market, one long dominated by American, European, Japanese and South Korean nameplates? The answer is a unique combination of industrial policy, protectionism and homegrown competitive dynamism. Western policy makers and business leaders are better prepared for the first two than the third.
Start with industrial policy—the use of government resources to help favoured sectors. China has practiced industrial policy for decades. While it’s finding increased favour even in the U.S., the concept remains controversial. Governments have a poor record of identifying winning technologies and often end up subsidising inferior and wasteful capacity, including in China.
But in the case of EVs, Chinese industrial policy had a couple of things going for it. First, governments around the world saw climate change as an enduring threat that would require decade-long interventions to transition away from fossil fuels. China bet correctly that in transportation, the transition would favour electric vehicles.
In 2009, China started handing out generous subsidies to buyers of EVs. Public procurement of taxis and buses was targeted to electric vehicles, rechargers were subsidised, and provincial governments stumped up capital for lithium mining and refining for EV batteries. In 2020 NIO, at the time an aspiring challenger to Tesla, avoided bankruptcy thanks to a government-led bailout.
While industrial policy guaranteed a demand for EVs, protectionism ensured those EVs would be made in China, by Chinese companies. To qualify for subsidies, cars had to be domestically made, although foreign brands did qualify. They also had to have batteries made by Chinese companies, giving Chinese national champions like Contemporary Amperex Technology and BYD an advantage over then-market leaders from Japan and South Korea.
To sell in China, foreign automakers had to abide by conditions intended to upgrade the local industry’s skills. State-owned Guangzhou Automobile Group developed the manufacturing know-how necessary to become a player in EVs thanks to joint ventures with Toyota and Honda, said Gregor Sebastian, an analyst at Germany’s Mercator Institute for China Studies.
Despite all that government support, sales of EVs remained weak until 2019, when China let Tesla open a wholly owned factory in Shanghai. “It took this catalyst…to boost interest and increase the level of competitiveness of the local Chinese makers,” said Tu Le, managing director of Sino Auto Insights, a research service specialising in the Chinese auto industry.
Back in 2011 Pony Ma, the founder of Tencent, explained what set Chinese capitalism apart from its American counterpart. “In America, when you bring an idea to market you usually have several months before competition pops up, allowing you to capture significant market share,” he said, according to Fast Company, a technology magazine. “In China, you can have hundreds of competitors within the first hours of going live. Ideas are not important in China—execution is.”
Thanks to that competition and focus on execution, the EV industry went from a niche industrial-policy project to a sprawling ecosystem of predominantly private companies. Much of this happened below the Western radar while China was cut off from the world because of Covid-19 restrictions.
When Western auto executives flew in for April’s Shanghai auto show, “they saw a sea of green plates, a sea of Chinese brands,” said Le, referring to the green license plates assigned to clean-energy vehicles in China. “They hear the sounds of the door closing, sit inside and look at the quality of the materials, the fabric or the plastic on the console, that’s the other holy s— moment—they’ve caught up to us.”
Manufacturers of gasoline cars are product-oriented, whereas EV manufacturers, like tech companies, are user-oriented, Le said. Chinese EVs feature at least two, often three, display screens, one suitable for watching movies from the back seat, multiple lidars (laser-based sensors) for driver assistance, and even a microphone for karaoke (quickly copied by Tesla). Meanwhile, Chinese suppliers such as CATL have gone from laggard to leader.
Chinese dominance of EVs isn’t preordained. The low barriers to entry exploited by Chinese brands also open the door to future non-Chinese competitors. Nor does China’s success in EVs necessarily translate to other sectors where industrial policy matters less and creativity, privacy and deeply woven technological capability—such as software, cloud computing and semiconductors—matter more.
Still, the threat to Western auto market share posed by Chinese EVs is one for which Western policy makers have no obvious answer. “You can shut off your own market and to a certain extent that will shield production for your domestic needs,” said Sebastian. “The question really is, what are you going to do for the global south, countries that are still very happily trading with China?”
Western companies themselves are likely to respond by deepening their presence in China—not to sell cars, but for proximity to the most sophisticated customers and suppliers. Jörg Wuttke, the past president of the European Union Chamber of Commerce in China, calls China a “fitness centre.” Even as conditions there become steadily more difficult, Western multinationals “have to be there. It keeps you fit.”
Chris Dixon, a partner who led the charge, says he has a ‘very long-term horizon’
Americans now think they need at least $1.25 million for retirement, a 20% increase from a year ago, according to a survey by Northwestern Mutual