Tag: hedging

Why Trump would be the Bitcoin Volatility driver in 2017

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2017 saw Donald J Trump take the office as the new President of United States of America. Right from the moment trump took to office, the global markets were facing uncertainty which lead to price fluctuations over speculation. Economists around the world predicted that Trump’s election might crash the markets. After taking to office, Trump has come out with policies that surely impacted the markets in ways more than one expected. President Trump has been delivering on his promises and has been resilient in sticking to his policies. While the global markets are certainly impacted by the policies, let’s look into how Bitcoin will be affected:

Trump’s initial firm steps:

When Trump announced the Visa ban for seven small economies, things didn’t seem so bad for the markets. The commotion that followed the decision, where major tech giants have joined forces to fight the policy has created uncertainty in the market. This lead to rise in Bitcoin prices during the period as a hedging measure by major market players. Later, Trump suffered a major set back in the appeals court on his immigration ban. The Bitcoin markets have turned a blind eye to this decision showing Trump’s credibility to affect the markets with policies whereas Trump’s setbacks weren’t that important. This only means Bitcoin markets would thrive on the uncertainty created by Trump’s surprise policies.

How Trump’s next steps would be impacting Bitcoin:

President Trump promised phenomenal tax plans last week which prompted for trades going long on dollar and US equities and short on Treasuries. Added to that Trump’s meeting with Japan’s Prime Minister Abe is set to have a short term bullish effect on Dollar-Yen Trading pair. Abe is bringing loads of investment promises which Trump is sure to promote heavily. If Trump does it, without thinking of currency manipulation, then USD/JPY can have a decent spike higher.

Nevertheless any shortcoming on his tax plan promises or mentions of currency manipulation with Japan would see a lot of turmoil in the market and hedging in Bitcoin. This would lead to increased volatility in Bitcoin prices. The first year of Trump’s administration with policies inflicting too much volatility in global markets would inturn make Bitcoin markets volatile.

Ignore Naysayers, Bitcoin is the New Gold

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Bitcoin investors are going through a rough patch right now as the cryptocurrency struggles to hold on to its gains from 2016. The main reason behind the headwinds facing Bitcoin is the government-led probe on Bitcoin exchanges in China. Interestingly, critics are taking the current weakness facing Bitcoin as ‘proof’ that their gloomy forecasts on Bitcoin will happen.

However, that Bitcoin is undergoing a rough patch doesn’t erase the fact that Bitcoin is a disruptive new force. This piece seeks to explore some of the reasons you should ignore naysayers and embrace the hedge that Bitcooin provides as a safe haven on par with gold.

Bitcoin is the new gold

It is no longer news that gold is a safe haven commodity that provides investors with a measure of safety and stability in times of economical and geopolitical uncertainty. Interesting, Bitcoin is shaping up to be another important commodity/currency with a safe haven appeal that leaves gold in the dust.

To start with, Bitcoin’s value as a safe-haven alternative currency became obvious during the 2016 U.S. presidential elections. Wall Street investors have mostly believed that the U.S equities market could crash if Donald Trump won the elections. Hence, when the news of Trump’s victory broke, investors pulled out their funds from traditional assets into alternative assets such as gold and Bitcoin. In fact, Bitcoin surged to towards breaking its all-time record high before the rally eventually slowed down.

More so, Bitcoin is an ‘independent’ currency that is not subject to the oversight of a central control unit. Bitcoin’s independence means that no government can rise up to introduce monetary or fiscal policies to influence the value of the Cryptocurrency. Bitcoin’s safe haven status as an alternative currency lies in the fact that its value is enmeshed in the realities of demand and supply as opposed to fiat currencies whose values can be manipulated at the whims and caprices of a government or its agents.

The fact that the Bitcoin system is built on a network of distributed and dispersed network of computers globally also helps to decentralize its operations. Bobby Lee, the CEO and cofounder of BTCC, a Bitcoin exchange in China agrees s that “the world is starting to realize that, just like gold is a good hedge, bitcoin is a great hedge against the system because it’s outside the system.”

Bitcoin’s reputation for fueling illegal transactions is not factual

Another point that critics often tout in their attacks against Bitcoin is that the cryptocurrency is often used to buy and sell illegal activities. The prevalence of Bitcoin on the dark web and its association with Silk Road has also fueled the flames of its questionable reputation.

However, the fact remains that any currency can be used as payment for illegal transactions and the noise about Bitcoin’s  use in illicit activities is mostly propaganda designed to discredit the cryptocurrency. One of the facts that Bitcoin critics might not want to acknowledge is that other top tier currencies such as the U.S. dollar are used as payment for illegal and illicit activities much more than Bitcoin. In fact, Bitcoin doesn’t cause illegal activities anymore than the U.S. dollar cause counterfeiting, drugs, and kidnapping among other crimes.

 

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