The digital asset head of Susquehanna International Group, a Pennsylvania-based trading firm, appeared on Squawk Box to discuss what possibly drove bitcoin up 145% year-to-date. While admitting that it was difficult to narrow down a price rally into specific factors, Smith hinted that the root of bitcoin’s exceptional performance in 2019 maximally lied in one thing: optimism. He said:
“There is a tremendous amount of optimism about US brokerages — particularly online brokerages offering bitcoin to retail customers in 2019. Noone has come out and said that openly; but there is a lot of talk about that, which is making people buy bitcoin ahead of that new investor demand.”
Smith’s explanation ventured into macroeconomic factors such as the U.S.-China trade war. He reminded the CNBC hosts that the escalating economic tensions between the superpowers had pushed the value of the Chinese yuan to its six-month low. The devaluation alone could have influenced Chinese investors to dump a capitally controlled yuan for bitcoin, which remains an open, decentralized asset to transfer value and ownership without needing governments or banks. Smith said:
“Much of the rise of bitcoin in 2017 came out of Asian countries like South Korea and China that have capital controls. Many people might be devaluing their currencies which makes bitcoin either a hedge or an outright way to get capital outside that country.”
"China would love to make a deal with us. We had a deal, and they broke the deal. I think if they had it to do again, they wouldn't have done what they did," Trump said earlier today. https://t.co/4goj1qSCQa pic.twitter.com/dIrzJSKwQM
— CNBC (@CNBC) May 30, 2019
Forbes reported that the trade war could spread to the U.S. bond market. Beijing has over $1 trillion in U.S. Treasuries, which it might sell in retaliation to Washington, D.C.’s economic restrictions on China. The event could fuel demand for bullish assets like bitcoin, especially when its closest competition gold has been almost flat.
Liquidity and Volatility
On being confronted with questions about bitcoin’s lack of liquidity and abundance of volatility, Smith asserted that it was necessary to judge the cryptocurrency based on its workings in a regulated space:
“I look at the regulated exchanges for real volume…look at the U.S. futures which are trading between 100 and 200 million dollars of value every day. And, in its most recent rally, they have been trading like $600 million. I think that is where institutional investors are going to find liquidity, or even in exchanges that are regulated by the U.S. authorities.”
Smith added that there is more than enough liquidity in bitcoin’s regulated market than people would ever require.
As for volatility, Smith argued that bitcoin is too nascent to be judged for its volatility. He said that the cryptocurrency is due for broader adoption, which would damper its volatility down the road. He added:
“Some people think bitcoin is a cross-border remittance solution, while some call it the native currency of the internet […] It’s risky and risks itself have returns associated with it.”
The bitcoin price was trading at $8,329 at the time of publication.