The bitcoin price is up by more than 30 percent in less than two weeks against the U.S. dollar following a 127 percent year-to-date gain from $4,000 to $9,100.
Fundamentals such as the hash rate of the Bitcoin blockchain network remains strong amidst an intensifying currency crisis as a result of the trade war between the U.S. and China.
Raoul Pal, the founder and CEO at Global Macro Investor and Real Vision Group, stated that bitcoin, like gold, is “doing it’s job” as an alternative store of value, indicating that the uncertainty in the global economy could be fueling the sentiment around bitcoin.
Is bitcoin being seen as an alternative store of value?
According to Pal, throughout the past several months, bitcoin has been operating as an alternative store of value as seen in its high level of volatility.
It has seen a steady inflow of capital from institutional investors since the beginning of 2019 based on reports of strictly regulated investment vehicle operators in the likes of Grayscale and a noticeable increase in volume in most major markets such as the U.S., Japan, and South Korea.
“And bitcoin is doing its job of suggesting an alternative system is gaining in probability (it trades like call option on a new system, in my mind). The price moves are so enormous (and thus the increase in probabilities are so fast) that you have to use log charts,” said Pal.
Due to the discrepancy in the market valuation of bitcoin and existing safe haven assets like gold, it remains unclear whether the broader market of investors consider bitcoin to be an established safe haven asset as a way to hedge against instability in the traditional financial market.
However, high profile investors have indicated that the rise in the value of bitcoin during a period in which investors are actively seeking various methods to protect their holdings from increasing geopolitical risks could lead to the asset appealing to more investors in the medium to long term.
“You get the picture. Sadly, we are at one of the biggest junctures for markets in history. You may disagree with my assessment of the odds. It doesn’t matter. But you simply cannot ignore the risk. Bonds. Dollars. Bitcoin and Gold. Thanks for paying attention.”
Similarly, billionaire investor Mike Novogratz who founded a publicly listed cryptocurrency merchant bank known as Galaxy Capital, emphasized that the global “currency crisis” could strengthen the narrative of bitcoin as a store of value, expressing optimism in the cryptocurrency market.
“The only manipulating China is doing to the RMB is keeping it stronger. If they truly let it float and removed capital controls, multiple trillions would leave. Long BTC,” he said.
A variable that has to be considered
The Dow Jones and the rest of the U.S. equities market fell steeply following the devaluation of the Chinese yuan, leaving the founders of the largest corporations in the U.S. such as Amazon with multi-billion dollar losses in their net worth overnight.
In late 2018, some investors suggested that the sharp decline in the U.S. equities market led investors to sell off liquid holdings including bitcoin for more secure options like bonds, possibly fueling the decline in the bitcoin price.
At the time, the bitcoin price dropped from mid-$6,000 to $4,000 in one of the steepest short term slips throughout 2018.
Although a similar drop has seemingly become unlikely because of the current momentum of the dominant cryptocurrency and the rest of the market, the potential effect of the dip in the U.S. equities market on the bitcoin price remains to be seen.
Last modified: March 4, 2021 2:39 PM