Grayscale Reporting: Bitcoin is a tool for hedging financial crises, with various features superior to gold

According to CCN's June 13 report, the global financial crisis has intensified, and Bitcoin has become the focus of attention. Warren Buffett, the legendary investment figure, calls Bitcoin a “rat drug”, but it turns out that bitcoin is not just a poison, but a sweet “nectar”, a potential tool for hedging liquidity risks. .


Image source: visualhunt

The valuation of the world's largest cryptocurrency bitcoin rose by about 47% between May 5 and May 31, and the closing price at the end of the month was close to $8,500. In the same period, the benchmark index of the US market, the Standard & Poor's 500 index, fell by about 6%.


In May of this year, bitcoin prices soared. (Source: TradingView)

Analysts said that the soaring price of bitcoin was directly affected by the US-China trade war and the depreciation of the renminbi. They now believe that cryptocurrency is either a means of hedging or a tool for capital to flee abroad.

Asset management company Grayscale Investments tried to connect these points in its latest report.

Bitcoin is a tool to hedge the economic crisis

The grayscale company's research found that the bitcoin market benefited the most when the mainstream financial industry faced an economic crisis. For example, during the Brexit fears from June 2016 to December 2016, bitcoin prices rose by 7.1%. During the same period, the euro and the pound fell 2.4% and 8.1% respectively. At the same time, the Morgan Stanley Capital International Global Price Index fell 4.9%.


Concerns about Brexit have shaken sentiment in global markets other than Bitcoin. (Source: Grayscale Investment)

Similarly, during the period from August 2015 to December 2016, concerns about the Chinese economy scared away regional investors, and bitcoin prices rose by 53.6%. At the same time, the RMB depreciated by 5.7% and the emerging market price index fell by 22%. The grayscale company wrote in the report:

“While Bitcoin is still at a very early stage as an investable asset, we have found evidence that Bitcoin can act as a hedging tool in global liquidity crises, especially those that lead to subsequent currency depreciation. ”

The company also mentioned that bitcoin prices have skyrocketed during the three weeks that Greek banks closed due to rising sovereign debt, rising geopolitical risks and tighter US financial environment.

Why is the hedging instrument not gold?

Peter Schiff, a well-known American stockbroker, often gives up Bitcoin as a safe-haven asset, arguing that investors are more willing to hedge liquidity risk through gold. In an interview with RT, he said:

"Bitcoin tries to pretend to have the same value as gold, but I think only a fool will treat it as gold. Bitcoin has no value. When you store bitcoin, you don't store any value."

Grayscale says people are throwing away heavy gold and buying a lighter digital alternative, Bitcoin. Shif’s view on this “abandonment of gold” is particularly important. The person who is optimistic about gold said that the movement of Bitcoin is “ridiculous” and is a “slapstick” that cryptocurrency has no intrinsic value.

Despite this, grayscale companies see cryptocurrencies as an exciting financial technology and investment opportunity. The company said in its report that Bitcoin has the consumption characteristics that gold lacks because it explores "the real application of blockchain technology" and "decentralized digital assets." The report reads:

“With the increasing popularity of Bitcoin, it represents a transparent, immutable, global form of asset flow that provides wealth preservation and growth opportunities. Therefore, we believe that it should be stable in many long-term portfolios. Strategic Position."

At the time of this writing, Bitcoin was traded at $8,218, which rose more than 120% in 2019.