Trade War turns Bitcoin into a “Safe Haven Asset”
Bitcoin Hedge
As the US – China trade war heightens, many analysts predict that Bitcoin will soon become part of many hedge funds’ portfolios. While U.S stocks have plummeted, safe haven assets like gold, government bonds and now bitcoin have retained their value.
In the past, Bitcoin has been highly correlated to the dollar but the trade war seems to have changed that . A “weak dollar has been good for bitcoins. … And it’s been really correlated to risk markets. This year, it’s steered away from the dollar because dollar’s been strong, bitcoin’s been up, which is a real breakage. It’s gone negative on correlation to the equity markets,” says Bitcoin bull Tom Lee
The result
It achieved 2 objectives, firstly, it strengthened the claim about digital currencies being free of the influence of global financial crises. Secondly, it went on to enhance bitcoin’s status as a viable alternative asset.
Unlike equity or stocks, safe haven assets are not dependent on the value of risk assets or related factors such as fiat currency or trade regulations. Instead, they retain the original investment in the face of volatile markets. In certain cases, they actually increase the value of the original investment. Likewise, Bitcoin is simply moving at its own pace with its own model.
Trade War Devaluation
Investors are becoming increasingly nervous as central banks have demonstrated they will continue to devaluate currencies. Earlier Monday, China, which has historically controlled its currency, allowed the yuan to fall to its lowest level in more than a decade. The yuan’s breakthrough came after President Donald Trump announced last week that the U.S. is putting 10% tariffs on another $300 billion worth of Chinese goods, effective September 1.
As if the volatility caused by this shift in the market was not enough, the value of safe haven assets was pushed further by the US Fed’s decision to cut interest rates on July 31. Once again, this was a development that had not taken place in over a decade since the Great Recession. Following the move, U.S. stocks were trading alarmingly lower as the trade war between the U.S. and China intensified.
Who Controls Bitcoin?
No one. It is simply a decentralized digital currency that cannot be controlled by anyone. Its value is not regulated by interest rates; not dependent on the performance of a fiat currency; and not correlated to any movements in the related markets. Bitcoin’s value and its movement in the market is based upon speculation that could not be controlled or predicted by anyone.
As it seems, Bitcoin does hold the power for investors to use it as a hedge on global risks. Since it remains free of a central authority and could provide price movements that come with large gains — it is safe to say that it might attract conventional investors who had not given the possibility of investing into Bitcoin a serious thought before this.
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