Bitcoin Safe Haven
Global markets are always affected by macroeconomic issues that majorly impact a particular country or region. Many a times, mere speculation about an impending event causes volatility and moves the markets significantly. Whenever this happens, investors scurry to find a safe haven so as to move their investments and shield themselves from the negative impact of the event. Traditionally, gold has been the safe haven whenever there was a massive shift in the trading prices. But this bubble was burst with the ‘Oil Slump’ of 2014, where the fall in oil prices affected other commodities. Gold and other precious metals marked historic lows and the market participants were left with limited options to safeguard their assets.
The introduction of crypto-currencies and their increasing trading volumes (especially Bitcoin), caught the eyes of many investors. They proceeded to diversify their portfolios using Bitcoin as a major instrument. This could be substantiated from the trading prices of Bitcoin during the oil slump which experienced a short term boost. This happened time and again when there was an imminent threat to any economy which could have an impact globally. Let us look at five such instances when Bitcoin was looked at as a good stand in investment.
There was heavy speculation around Greece facing a possible exit from Eurozone by defaulting on its debt obligations. This created tension in the European Commodities market which had been seeing a sharp drop in prices accompanied by strong trading volume. When the Greek economy was collapsing there was a rise in the price of Bitcoin. This was majorly attributed to the increase in volumes. It came on account of those Greek users who were shut out of their bank accounts and were hence driven to use the digital currency. But later when the situation became dire, there was a sharp drop in the trading price of commodities. During this period, Bitcoin price moved up the ladder with good trading volume. This was attributed to investors moving their funds into Bitcoin to hedge against drastic price drops in commodities.
Russian Ruble drop:
The economy of Russia was majorly impacted because of the oil slump leading to a sharp dip of Russian Ruble. The general population swapped currency for products to hold the value. However, the investors decided to trade heavily in Bitcoin to temporarily hold till their currency gets a strong footing again. This was observed in the drastic increase of trades on the Bulgaria based cryptocurrency BTC-e.
Scottish Independence Referendum:
Though the Scots voted against leaving the United Kingdom, the speculation surrounding the event drove the trading prices of pound low. During this period, there was a significant increase in the trading price of Bitcoin. This was fueled by the fact that Bitcoin was being looked up to as an alternate for British Pound in the event Scotland votes for Independence.
Bitcoin marked a two year high in June 2016 owing to the devaluation of the Yuan in China. While the devaluation impacted the global economy adversely, the rise in the price of Bitcoin was attributed to heavy investments being shifted towards it.
UK leaving European Union: ‘Brexit’
With speculation around UK leaving the European Union, there was high volatility in the price of Bitcoin. But the volatility was observed to be in an upward trend. This is made it clear that the market players are moving their funds into Bitcoin to avoid the repercussions of the Brexit. This can be observed from the low volumes in the European trading platforms and increased volumes in the Bitcoin platforms.
Hence it is indeed true that Bitcoin can in fact be the safe haven at least for short duration. Chris Burniske, a block chain analyst and products lead at investment manager ARK Invest opines:
“Bitcoin[and Gold] shares those same characteristics: Both have an extremely limited supply and a relatively inert state. While gold has had a bit of a run in 2016, over the last five year period it’s been a terrible performing asset. So you’ve got people starting to wonder where there are safe havens to store their assets. I think you have lot of people saying ‘Hey we want to diversify a little bit’ making allocations to bitcoin’.”
Hence Bitcoin can in fact be termed as ‘Digital Gold’.