Is Bitcoin “A Hedge Against Global Instability”? Economist & Trader says “NO” But is He Right?
While Bitcoin is up over 5% touching $8,200, the world share market has snapped its seven-day winning streak as the White House took a tough stance on trade talks with China. No visible rise in US inflation meanwhile is keeping up the talks of an early cut in interest rates.
Global Market Drops while Bitcoin Moving Upwards
Wall Street futures and Europe’s main markets followed Asia lower. Meanwhile, Benchmark government bonds rallied and the dollar hovered near 11 weeks low as the US consumer price index boosted traders’ bets on the first Fed rate cut since the financial crisis.
“I think we are in for a very nervous wait until next week's FOMC meeting,”
said Saxo Bank's head of FX strategy, John Hardy.
In the mix was Chinese inflation that overnight picked up to 15 months high because of surging pork prices. US President Donald Trump said on Tuesday he has no interest in moving ahead with China in a trade deal unless Beijing agrees with a few major points.
“The Fed interest rate way too high, added to ridiculous quantitative tightening! They don’t have a clue!”
said Trump on Twitter.
Fed policymakers will be meeting on June 18-19 against the backdrop of slowing US growth, rising trade tensions that have led markets to price in at least two rate cuts by 2019 end. Futures imply about 80 percent chance of a rate cut as early as next month.
While global markets are down, BTC/USD is currently trading at $8,200 with 24 hours gains of 5.05 percent and up 121 percent till date in 2019.
Will Bitcoin Emerge as a Hedge against the Instability
With growing tensions all over the world and the upcoming financial crisis that has been called out by several experts, the question is will the world’s top cryptocurrency work as a hedge against global instability.
“I think [Bitcoin is] serving as a bit of a non-correlated asset,”
said Barry Silbert, CEO and founder of Digital Currency Group when the US-China trade war escalated hitting stocks hard while the crypto market surged that got the community talking that crypto just might work as a safe haven.
Flight to safety of bitcoin
— Barry Silbert (@barrysilbert) May 13, 2019
“If you were in China and you wanted to diversify, it would seem logical that Bitcoin would be a short term alternative,”
Head of International Fixed Income at National Alliance Securities Andy Brenner, had said.
However, economist and trader Alex Kruger says Bitcoin is not a hedge against the global instability and “those who say it is are either fooled by randomness or cherry-picking data.”
“Bitcoin is as much a global instability hedge as it is an avocado hedge,”
Kruger further talked about the BTC-stock price correlation that some argued were very high in May. This is true, says Kruger but he states that it wasn't the case before May, however this correlation likely to emerge once the market becomes more institutionalized. In that case, both the possibilities of a risk-on and risk-off (safe haven) are possible.
The reasons for the same could be that the market is not mature enough and too concentrated in ownership to predict how exactly it will behave during a market crash.
What about Bitcoin's correlation with capital controls/outflows from countries such as China? That is real. Bitcoin is used to bypass capital controls. Question is if such flows are enough to drive price. Covered here, plan to expand on it later on 👇https://t.co/ah5kpQam6w
— Alex Krüger (@krugermacro) June 11, 2019
Recently, eToro senior analysts, Mati Greenspan also said that,
”Bitcoin is not a safe haven. Unless you consider the entire fiat system unstable, which the current global market clearly does not.”
Fiat is still expected to win because in extreme scenarios cash is more liquid and less complicated for transacting, investing, and hedging that in part as explained by Jan Loeys, Managing Director and Analyst at JPMorgan could be due to fiat’s status as a legal tender.