12 August 2019, 14:08
2 min reading
The increasing tensions between Washington and Beijing have been bad for the equity and currency markets so far, but good for Bitcoin. While cryptocurrencies are uncorrelated to these markets, the weakening yuan has spurred Asian investors to seek refuge in other assets. The current market conditions have already benefited traditional safe-haven assets higher. Gold, a
The increasing tensions between Washington and Beijing have been bad for the equity and currency markets so far, but good for Bitcoin. While cryptocurrencies are uncorrelated to these markets, the weakening yuan has spurred Asian investors to seek refuge in other assets.
The current market conditions have already benefited traditional safe-haven assets higher. Gold, a go-to choice for investors in periods of economic or political instability, broke above the psychological mark of $1,500 an ounce for the first time in six years.
The yellow metal is on track for a good year with year-to-year gains already standing at 17%. A trend mostly tied to the rising concerns over the global economy, with special focus on a potential full-scale trade war between China and the United States.
Other safe-haven assets have also reacted to this situation. The yield on 30-year US treasuries, which dropped to as low as 2.145%, not far from a record low of 2.089% set nearly three years ago. Falling yields indicate the players’ willingness to pay to put their money in assets they believe will keep their money safe.
Following trade talks between the two supernations last week, the Trump administration announced a 10% tariff to be imposed on $300 billion of Chinese imports from September. The Asian counterpart responded with a ban on American agricultural products and letting its currency fall below the key support of 7 yuan per dollar to its lowest level in a decade.
In response, the US Treasury Department officially labeled China a currency manipulator, which could lead to additional penalties or registrations against the communist nation by international agencies such as the International Monetary Fund.
Despite this recent escalation, none of the countries has pulled out from the upcoming second round of trade talks due in September.
While Bitcoin is widely perceived as a purely speculative asset rather than a safe-haven, a growing number of Asian investors are putting their bets on the cryptocurrency to safeguard from red figures in the stock and currency markets.
Bitcoin remains far from its historical peak of $20,000 but it has doubled in value since the beginning of 2019. The world’s most famous digital currency was standing around $11,850 as of the time of this writing, with a year to date growth of 221.18%.
Bitcoin and Gold have been walking in lockstep for the past few weeks, a rarity that isn’t entirely new. Similar behavior was noticed in 2016 when U.K. citizens voted in favor to leave the EU.
The correlation between these two assets has recently ramped to 0.827, a recent analysis by Bloomberg showed. A correlation coefficient of 1 indicates a perfect symmetry.
Moreover, the statistical study suggests that these assets moved in a similar direction 50% of the time in the last year, but that rose to 58% over the past quarter.
Opinions aside on whether Bitcoin classifies as a safe-haven asset or not, data is pointing out that investors are increasingly running to the digital currency in periods of market turbulence.
“Bitcoin should remain a primary beneficiary of growing demand for its store-of-value, quasi-currency asset properties, similar to gold,” wrote Mike McGlone, an analyst with Bloomberg Intelligence, in a note released earlier this week.
Yet, the correlation between these assets isn’t exactly enough to put them both in the same basket. Bitcoin, unlike other safe-haven assets such as gold or treasuries, hasn’t been able to hold gains in the aftermath of the initial rally.
That said, Satoshi’s cryptocurrency is more likely to be proving its ability to grow rapidly amid speculative waves rather than serving as a standard safe-haven asset. On the street, analysts insist that Bitcoin’s correlation to gold is more of a short-term trend and shouldn’t be taken into account for those investors focusing on long-term strategies.
Thinking of Bitcoin as a safe-haven asset is not an easy thing to do. Extreme price swings, hacks and numerous allegations of manipulation still weigh on its reputation. However, the correlation with gold might indicate that the overall perception of this currency is slowly shifting from purely speculative to a more low-risk store of value.