As a unique safe-haven asset, Bitcoin began to show its potential.
Bitcoin was born in response to the global recession caused by the collapse of the financial system. Since then, central banks around the world have adopted an unprecedented unconventional monetary policy. The start of Bitcoin is slow. In several trading days in 2009, the Bitcoin network traded less than 1 BTC. The reason why Bitcoin survived in the early days was partly due to the extreme macroeconomic environment that existed at the time.
The macroeconomic environment has supported the growth of Bitcoin in the years following the birth of Bitcoin. Only the Fed launched three rounds of quantitative easing between 2008 and 2013. This extreme monetary policy decision, coupled with the willingness of governments to help key financial institutions, has led many to question the sustainability of such policies, which has led many thinkers to turn to Bitcoin.
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In the past few years, the world economy has been relatively stable, which is the longest-lasting economic growth in American history. As a result, the growth of Bitcoin and other cryptographic assets has not recently experienced the supporting macroeconomic environment in which they were born.
The recent development has brought about a fundamental change in the macroeconomic and geopolitical environment. Faced with some weakness in the latest macroeconomic indicators, the economic yield curve of most developed countries is generally reversed (negative interest rate), the central bank's inflation target is not realized, the inflation expectations of market participants are falling, and the Fed is leading again due to the outbreak of the trade war. The pace of loose monetary policy. At the recent Federal Open Market Committee meeting, it became clear that the Fed is increasingly concerned about the potential impact of negative shocks on the economy and is willing to consider “insurance” interest rate cuts to maintain current economic expansion.
Other central banks around the world have responded similarly. Although the European Central Bank has not lowered the key interest rate, it has adjusted its long-term guidelines to show more monetary easing. The Chinese side has taken the initiative to raise the RMB exchange rate to above 7 to weaken the negative impact of US additional tariffs. Market participants were shocked by the announcement by three central banks in New Zealand, India and Thailand that interest rate cuts exceeded expectations.
Bitcoin is not immune to this dramatic turning point. It once rose with the rise of gold, and its intrinsic quality indicates that it can effectively act as a safe-haven asset, especially its decentralization, so that it is not controlled by any central authority. The impact of policy errors. These qualities are important for hard currency. From this perspective, Bitcoin has many characteristics in common with gold, and it is reasonable to compare them theoretically.
In fact, the fall in real interest rates and concerns about geopolitical instability have pushed gold to its highest point in six years, and, as the narrative says, bitcoin has also experienced a large rebound.
From the price trend of bitcoin and gold, it is easy to conclude that there is a positive relationship between the two.
The correlation coefficient is a summary statistic that is easy to interpret and calculate and is typically used to provide an objective measure of the linear relationship between two time series. Although the correlation coefficient is widely used and it is easy to explain, it is also susceptible to abuse. Some analysts mistakenly use price (or level) instead of two time series returns (or changes) to calculate correlation. Such analysis can lead to erroneous conclusions. Our analysis uses daily returns to calculate an economically relevant correlation coefficient.
The actual data provides only modest support for safe-haven asset statements. According to a 90-day data correlation analysis, the historical correlation between bitcoin and gold returns is not strong. Interestingly, this correlation has been steadily rising since the beginning of the year, as the theory has expected. The current correlation is +0.20, which is higher relative to its historical range value, but still lower in the absolute range, where the correlation coefficient can be between -1.0 and +1.0.
Such a result should prompt market participants to critically review the narrative of safe-haven assets. Despite strong theoretical support and solid evidence that both bitcoin and gold responded similarly to specific geopolitical events, an appropriate correlation analysis showed that the relationship between the two was weak.
How do we align these empirical results with mainstream narratives? Perhaps bitcoin and gold prices have been rising simultaneously, not because they all reacted similarly to the same macroeconomic and geopolitical factors, but because bitcoin has experienced an 85% decline (ie, experienced the bottom of the cycle) , coupled with the specific factors of Bitcoin (just like Facebook launched its own cryptocurrency).
However, this interpretation does not fully explain the entire range of observations. The occurrence of certain geopolitical events has indeed led to simultaneous fluctuations in bitcoin and gold. Some of the most notable events include Trump's presidential election, the Brexit referendum, and the recent renminbi-breaking 7 incident caused by increased US-China trade tensions. These events show that the relationship between Bitcoin and gold also depends on the nature of the event.
Under normal circumstances, gold responds to changes in standard macroeconomic variables, especially real yields. Bitcoin is an asset class that is still in the growth stage and does not respond too much to macroeconomic data. This explains that the correlation between Bitcoin and gold is usually low, fluctuating around zero.
At a time when geopolitical risks are intensifying, the desire to maintain safe-haven assets is at the heart of the macroeconomic situation. In this case, the intrinsic quality of Bitcoin and gold will attract capital and may experience a brief period of high correlation.
Viewing the relevance of Bitcoin to gold in a shorter period of time (such as 30 days) provides evidence for this narrative. So far, geopolitical tensions are rising but are being contained, and any outbreak is short-lived. A shorter rolling window period is more sensitive to these short-term events. In fact, the current 30-day correlation is +0.49 , which is much higher than the historical range. This 30-day period is the most serious period of escalation of US-China trade war tensions. This shows that Bitcoin is a unique safe-haven asset that does not respond to macroeconomic surprises but has geopolitical tensions. But there is a reaction.
Bitcoin shows a unique nature of safe-haven assets that can hedge against real black swan-like events, that is, central agency failures or wrong policies, while it does not respond to normal macroeconomic surprises. Bitcoin's unique hedging capabilities combined with its volatility (almost an order of magnitude higher than traditional financial assets) make it highly desirable from a portfolio construction perspective, especially for portfolios that tend to be volatility-weight asset classes.
The world is taking a decisive step towards a macroeconomic environment and a geopolitical climate that is more similar to what happened at the origin of Bitcoin – low interest rates, unconventional monetary policy and geopolitical tensions. In the long run, this shift should support the price of Bitcoin. In addition, the likelihood of some serious incidents is rising sharply, possibly due to certain policy errors in the major economies of the developed world, inefficient monetary policy instruments currently addressing the slowdown in economic growth, unexpected election results, social unrest or sovereign debt defaults. Even the extreme war. What is most disturbing is that the undercurrent of social tensions is taking place in a world of macroeconomic conditions and fairly good asset prices. In the context of the global economic downturn, these social tensions will intensify and may lead to the more prominent nature of Bitcoin's safe-haven assets.
Network data summary
On August 5th, the large reward for Litecoin was halved from 25 LTC to 12.5 LTC. Since then, the market capitalization and realized market value of Litecoin have declined. Due to the reduced incentives per block, Litecoin mining revenue fell by 54.3% from last week. The sudden drop in total mining revenues has forced many inefficient miners to exit the market unless they can adapt and quickly reduce costs. The total network computing power of Litecoin has fallen by more than 12% from last week, indicating that some miners have begun to leave the network.
On the other hand, the active addresses and transactions of Litecoin have increased by more than 65% since last week. In addition, the adjusted transaction value of Litecoin increased by more than 32%, while the adjusted transaction value of Bitcoin only increased by 1.2%.
Although the transaction and transfer are relatively flat, the average daily cost of Bitcoin has risen by more than 44%, while the calculations of Bitcoin and Ethereum have both increased, which is in stark contrast to the situation of Litecoin.
The number of addresses with at least one billionth of Bitcoin supply has reached an all-time high. At the current market price, holding an address worth more than $200 is in line with this indicator.
The calculation of Litecoin began to decline after the halving of the block reward on August 5, and fell to the bottom of 358 TH/s on August 7, and then began to rebound, and rose to 413 TH/s on August 10.
In the past year, bitcoin prices have risen by more than 80%, outperforming the vast majority of cryptocurrency assets on the market. The table below shows the index prices denominated in bitcoin over the past year. Among the mainstream assets, only the currency of the currency is better than Bitcoin, with a margin of 44%. In bitcoin, all other mainstream currency assets fell sharply.
The decline in small-cap assets is even more serious. Here are some of them: