Whether digital currency can become a safe-haven asset today

Core Tip: The impact of the trade war between China and the United States on the global market has intensified, and investing in digital assets is a relatively new phenomenon. Now the opportunities of the times have come, but now that the digital currency is still small in scale, the market is not mature enough, the products are not selective enough, and the fluctuation trend is also obvious. If there is a stable, mature, diversified and powerful digital currency market, it must be the choice of many investors today. The times are calling for a strong digital currency market to exist.

The impact of the Sino-US trade war on the global market has intensified. The US stock market recorded its biggest one-day drop this year on Monday, while the bond market's economic recession indicator was the strongest bearish signal since 2007. The benchmark S&P 500 index fell to a two-month low, down 6% from its all-time high in July. Earlier, China allowed the RMB exchange rate to fall below the key threshold. The escalation of the US-China trade war has aggravated concerns about the prospects for global economic growth.

In the traditional world, trade disputes have emerged one after another. Since President Trump took office, it has provoked multinational trade frictions around the world. In particular, the trade war between China and the United States in the world's two major economies has become more and more fierce, which may cause the global economy to decline. In addition, the trade war between Japan and South Korea has become increasingly hot, and there are also trade sanctions in the United States that have caused serious economic depression in some countries.

Bitcoin has hedging properties

With the chaotic effects of trade wars between China and the United States on the global market, investors are trying to find assets that are not affected by them. Digital currency has become one of the hot options for investors, but has become an ideal safe-haven asset. ?

With the series of major events such as the Federal Reserve's interest rate cuts and the renminbi breaking 7, the hedging attributes of assets such as gold and bitcoin are becoming more and more obvious, said the person in charge of the WOEX exchange. Since the news of Sino-US trade escalation, gold has jumped to its highest point in six years, an increase of about 4%. Bitcoin prices have risen nearly 20% since last week, and Bitcoin once again broke through the $1,105 mark, and what happened was that its market share (BTC Dominance) soared again. The BTC Dominance indicator has reached 67.6%, distance 70. The key proportion of % is getting closer. According to the data, Ethereum, Bitcoin cash, Litecoin, etc. rose more than 5%.

Brad Bechtel, head of foreign exchange at Jefferies LLC, said, “Bitcoin looks a bit like safe-haven assets. Bitcoin will be weak when the market stabilizes and rises. But every time we see market turmoil and start selling, we’ll see Bitcoin and safe-haven assets are rising."

Austrian economist Ron Paul said: I am very confident that Bitcoin has become a hedge against uncertainty, especially in the international market. This has been the case since the BTC reached $1,000 at the end of 2013.

Bitcoin cannot be used as a safe haven

Many people are deeply skeptical about using Bitcoin as a safe-haven asset as an asset allocation.

Bitcoin critic Peter Schiff said: I don't think it will be a protective measure at all. I think there are speculators who buy it to speculate that someone might buy it as a hedge. Although Schiff said Bitcoin "can replicate the attributes that make gold a better currency than other commodities," he also said that bitcoin is "not" a hard asset and that "no" like gold, it lacks the potential demand for gold and As a utility of goods.

Recently, Bloomberg reported an article "Bitcoin is not an ideal safe-haven asset". The article interviewed Dave Balter, CEO of Flipside Crypto in Boston, saying that funds are deposited in assets such as US Treasury bonds because they are government-backed. Or invest in gold, which is seen as a hedge against inflation and the weak dollar. The performance of these assets is generally stable, but bitcoin is very unstable. “The risk is that Bitcoin will rise or fall by 20% overnight. Bitcoin is always going up and down, frankly saying that safe-haven assets should not be. These investors may find that it is not like traditional safe-haven assets. Safety."

In fact, according to Bloomberg data, Bitcoin’s average daily volatility exceeded 4.7% last month, with four double-digit daily volatility since the beginning of July. In contrast, the average volatility of gold during the same period was 0.8%.

The times are calling for a strong digital currency market

The escalation of Sino-US trade disputes is only one factor of global geopolitical instability, in addition to the instability of parts of the region caused by Iran, North Korea and the Brexit. This makes investors looking for ways to protect their assets. The digital assets that are accessed globally are very attractive, and their decentralized structure makes it impossible for the government to intervene. This is the charm of digital currency. There is no regional division of digital currency, no political disputes, encryption and transparency, only real and virtual values ​​exist.

Investing in digital assets in times of market turmoil is a relatively new phenomenon. In the past, investors used to buy gold and US Treasury bonds as a means of hedging. But for the digital currency market, the opportunities of the current era have come, but now that the digital currency is still small in scale, the market is not mature enough, the product selectivity is not enough, and the fluctuation trend is also obvious. If it is a stable, mature, diversified and powerful digital currency market, it must be the choice of many investors today. The times are calling for a strong digital currency market to exist.

Author: Xu Wei