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Is Bitcoin the Global Financial Crisis Hedge Everyone Hopes it to be?

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A quick look around some of the world’s biggest markets will paint a pretty worrisome picture. The European Central Bank is printing more money; the US Federal Reserve is cutting rates while setting up a trade war with China – whose own currency is depreciating rapidly. It’s a right mess, but is Bitcoin the hedge against it?

Meanwhile, on a global, decentralized level, there is Bitcoin which is having a pretty good 2019, up around 400 percent to date. It is not too difficult to see why people, now and in the past, have labeled Bitcoin as a global hedge. 

More so, the recent news of a potential global economic downturn coincided with Bitcoin managing to rise in price from around $9,000 to $12,000. This led many to casually remark that financial uncertainty is doing its bit for the alternative currency.

However, is it the case that when things start to get a little leery in traditional finance that money suddenly starts rushing into Bitcoin? Has the digital currency got what it takes to perform like a hedge, and are people brave enough to enter this market, which is still only ten years old?

Concerns of a traditional kind

The time that Bitcoin started picking up again, heading back over $10,000, was when it was announced that European Central Bank was to deliver another round of monetary stimulus to combat the euro area’s severe economic slowdown.

These policy moves, potentially including interest-rate cuts and renewed quantitative easing, were quickly noted by one of the biggest Bitcoin Bulls around, Anthony Pompliano, who called this “Rocket fuel” for Bitcoin.

Soon, the US and China stepped up their geopolitical battle with the former accusing the latter of being a currency manipulator. The irony here, of course, was that the week prior, the US Federal Reserve said it would be cutting interest rates for the first time in Bitcoin’s existence. Again, the hope being it would stave off the possibility of an economic downturn.

China has also seen its currency, the Yuan, weaken against the US dollar as the central bank took steps to steady the Yuan after its recent sharp fall. The currency fell below the 7 yuan to the US dollar level for the first time since 2008. That is what led Washington to label China a currency manipulator.

So while all this squabbling was going on, it was predicted that investors were buying up Bitcoin in preparation for a bigger trade war that was around the corner. But was this really the case? Sure, Bitcoin’s price rose on this news, which would indicate an increase in demand and buying, but was it people trying to avoid an economic collapse?

What the reports say

Veteran gold bug and well-known Bitcoin naysayer, Peter Schiff, claimed that current events impacting the Chinese economy did not cause new interest in Bitcoin.

“The Chinese aren’t buying Bitcoin as a safe haven. Speculators are buying, betting that the Chinese will buy it as a safe haven!” he Tweeted, raising a pretty good point for anyone who has any knowledge of how speculative the cryptocurrency markets can be. 

However, a report from San Francisco-based SOFOX claimed that Bitcoin is a global hedge, and based this finding off the fact that the S&P 500 is currently negatively correlated with all leading cryptocurrencies.

So while the US stock market is down, SFOX claims Bitcoin is up, because of a negative correlation.

That being said, it all depends on how you read the charts because Mati Greenspan, Senior market analyst for eToro, disagrees with this conclusion Tweeting: “Bitcoin is not a safe haven it’s a risk asset and it has virtually no real correlation with gold, the stock market, or the US Dollar.”

It seems unlikely that if there is even a severe economic downturn that suddenly the world’s money would go flooding into Bitcoin, elevating the price and making us all millionaires, potentially ushering in a new era of decentralized global finance – but wouldn’t that be nice? 

However, there will be some investors who are more inclined to invest their money on a risk that has the chance of significant gains, than pumping money into a global market’s whose risk is only downward-facing currently.

Darryn Pollock

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