Bitcoin is Emerging as a Safe-Haven Asset while Global Markets Tumble in US-China Trade War
- While global markets plunged due to the ongoing trade war Bitcoin surged more than 17 percent.
- The rally coincides with a drop in Chinese Yuan which might be seeing Bitcoin as a hedge option
The leading cryptocurrency as we have already reported is making its case as an uncorrelated, global hedge while global stocks take a plunge.
During the entire month of May so far, Bitcoin has been seeing a massive rally that took it from $$5,440 to $8,335, today’s highest point. Till date, in 2019, BTC/USD has surged 118 percent.
While Bitcoin smashed through $8,000 on Monday, US equity markets headed in another direction. The Dow Jones Industrial Average fell about 696 points in its worst trading session since January.
Any questions? pic.twitter.com/BC28Mobpov
— Max Keiser, tweet poet. (@maxkeiser) May 13, 2019
The losses came after China hit back at the US by imposing a tariff of 25 percent on $60 billion worth of American goods. Earlier, the US had raised tariffs on $200 billion worth of Chinese goods to 25 percent.
On Tuesday, Hong Kong led losses as Hang Seng Index shed 1.7% while Shanghai was off 0.2% and Tokyo shed 0.7%.
“In the short term, it looks like volatility is here to stay and we could see this risk-off, risk-on going on for a long time.”
Medha Samant, director of investment at Fidelity International told Bloomberg TV.
For China, Diversification in Bitcoin is “Logical”
Apart from stocks, Chinese yuan also tumbled to a four-month low this week. Andy Brenner, Head of International Fixed Income at National Alliance Securities pointed out the divergence in BTC price and Chinese currency prices, in a note to clients.
“If you were in China and you wanted to diversify, it would seem logical that Bitcoin would be a short term alternative. While we do not see the direct flows of who is buying bitcoin, we can see that the bid for bitcoin in this latest run has coincided with a big down tick in the value of the Chinese Yuan versus the dollar.”
3/ What’s notable is $BTC's performance in the context of a broader risk off move in macro assets. The China trade war seems to be increased evidence of weaponization of fiat currency which may be enough for some to have small $BTC allocations as a hedge.
— Rptr45 (@Rptr45) May 13, 2019
Bitcoin to the most part seems to be out of the crypto winter since dropping to it's yearly low at $3,150 in December 2018. Though BTC has still a way to go to $20,000, the all-time high from December 2017, the flagship cryptocurrency is right on track and expected to hit even a higher peak this time.
Currently, trading near $8k, the next key level that we need to watch according to crypto industry experts is $10k.
Bitcoin As A Global hedge
Bitcoin bull Tom Lee says “Bitcoin has low correlation with markets,” an analysis echoed by Mati Greenspan, senior analyst at eToro, who Tweeted,
“Yes, Bitcoin is surging while the stocks are declining. No, correlation does not equal causation!! Bitcoin is not a safe haven!!!.”
“If you look back at 2018 when the Fed was raising interest rates, bitcoin was not performing well,”
“I think that’s what we’ve seen with bitcoin the last two months — the Fed signaling we’re cutting rates.”
If we take a look at the popular and established safe haven asset gold, the yellow metal was up only 1 percent, a rally nowhere near Bitcoin’s. The institutions are all up in Bitcoin’s game as well as we saw Bakkt announcing its launch in July 2019 and Fidelity Investments’ plans to allow customers to buy and sell cryptos within weeks.
“Crypto fundamentals have been strong and building since early this year, when it was clear that we were oversold, and the continued parade of positive news and new retail and institutional offerings launching are firmly behind this bull market move,”
said Jeremy Allaire, Circle co-founder, and CEO.