Economic Uncertainty Could Lift Bitcoin Prices
Investors could be hedging against the traditional market
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Yesterday’s Bitcoin (BTC) dip was short-lived, and the original cryptocurrency is now back to double-digit gains. Reports that the FCA is moving to ban all crypto-linked derivatives have barely dampened the coin’s trajectory.
After rebounding off the $9,800 support level, Bitcoin surged far above the danger zone. BTC was trading at around $11,400 at press time, 13% above its weekly low and shooting back towards the yearly high of $13,700.
So what’s causing the rebound? As Crypto Briefing suggested yesterday, this could be a sign that the latest correction – which wiped nearly $4,000 from BTC prices – is now fully over.
The market’s trajectory remains firmly bullish. Institutional interest is high, as booming derivatives trading on CME and BitMEX can attest. According to Travis Kling of Ikigai Capital, the Federal Reserve’s decision to reverse quantitative tightening sparked a spending spree in all assets – including Bitcoin.
But there may be another explanation – one which suggests institutional investors are preparing for a global economic downturn.“[A] global trade war and a no-deal Brexit remain growing possibilities not certainties,” said Bank of England Governor Mark Carney, which could push investors towards historically safe assets.
Global uncertainty has already led to a rally in sovereign bonds, and U.K. and German gilt yields – which move inversely to bond prices – hitting record lows. The bond rally puts Brevan Howard on track for the best half-year performance in a decade, after the hedge fund bet on falling bond yields, as the Financial Times reports.
Gold, a well-known hedge against spirals in the traditional market, also surged upwards ahead of the G20 Summit in Osaka, Japan. It has since corrected following the relatively positive outcome, as trade tensions between the U.S. and China began to subside.
Gold’s status as a safe haven was cemented during the financial crisis, believes Simon Denham, Chief Risk Officer at trading platform TigerWit. He highlighted that both gold and Bitcoin share similar characteristics as they are “getting less expensive to hold long term and, by their nature, both have a strictly limited supply.”
A sudden change in the supply or demand for either asset could easily cause a surge in the spot price, Denham added.
A climate of growing uncertainty might be affecting today’s Bitcoin price. Mati Greenspan, eToro’s senior market analyst, says that the correlation between Bitcoin and gold prices is at the highest level since 2016. Both assets have been “moving in lockstep” since the beginning of June.
“[I]t does seem like bitcoin is becoming more integrated with the rest of the financial markets,” Greenspan said.“Seems like bitcoin is finally starting to respond to external factors.”
Crypto Briefing has previously suggested that Bitcoin might become a hedge against uncertainty in the traditional markets. That might explain why there has not been a corresponding surge in other cryptocurrencies – investors want to hedge against the market, not speculate on altcoins.
Bitcoin might prove more desirable than other assets because its value doesn’t rely on a centralized authority – either a public listed company, project or sovereign state. The latest jump could indicate more frayed nerves on traditional markets.