Will the Eurozone debt crisis affect Bitcoin?

Foreword: Does the macro economy have an impact on the price of bitcoin? Is Bitcoin a safe haven? It is still controversial so far. This paper believes that once the euro zone countries have a debt crisis, assets will flow to gold in order to avoid risks, and about 2% of the funds flowing to gold may flow to bitcoin, thus affecting the price of bitcoin. Of course, these are the author's predictions and cannot be used as investment advice.

For many years, stock research has always had a defining characteristic of price targets. Recently, price targets have been transformed into a “target range,” which has given researchers more room to change and is less likely to be “incorrect”. Everyone who has made a wrong price target will tell you that it is difficult to do because the time frame they choose is not enough to get their forecast to reach the price target.

In cryptocurrency, I think it will become more complicated. In 2018 alone, there were various price target predictions that should have been achieved before the end of the year, but in the end almost all of these predictions were wrong, often with very large gaps, at the end of 18 years. The closing price is approximately $3,750. These price forecasts are usually published by the leaders of the cryptocurrency market through some very public media channels, and I respect and admire them.

When the year came in 2019, some people explained why they thought their predictions didn't work and then adjusted the target price and timetable. Others said that for various reasons, bitcoin prices are difficult to predict and vowed to stop. Make further price forecasts.

In my ten years of market experience, I have not made a public price forecast for anything, but I think this will be a good time to make the first attempt. Although I don't intend to say that I expect Bitcoin to reach $X before Y, I plan to use a series of articles on several macro topics, because I believe these issues are likely to happen in the next 2-4 years. In this series, I will make a series of predictions for bitcoin prices. If the above macro topics are presented separately, then I think these price forecasts are reasonable.

This series of articles focuses on several assumptions related to Bitcoin, especially as a hypothesis of value storage. After these assumptions are clear, I will show how potential macro events will trigger cash inflows into Bitcoin, leading to subsequent market capitalization expansion, which will affect Bitcoin demand and ultimately affect Bitcoin prices.

One of the main assumptions here is that during the capital depreciation, 2% of the cash flow, which usually flows to gold, is transferred from the risky asset to the bitcoin. This is because, as investors' confidence in Bitcoin has increased, Bitcoin is considered to be a safe and less volatile asset, which is also accepted by more people throughout the institutional investment space. The only safe-haven asset, it is more meaningful to think that diversified investment.

Second, in order to have a meaningful impact on the price of Bitcoin, institutional investors need only take a small portion of their total investment from precious metals to diversified investments into Bitcoin. The total market value of Bitcoin is minimal compared to the flow of funds triggered by the macro events I will describe below. (Blue Fox Note: Bitcoin currently has a market capitalization of only $150 billion, which is very small compared to other asset types.)

In this article, we will explore what happens if a country in the euro zone experiences a debt crisis. If we look back at the macroeconomic shocks caused by geopolitical events and high sovereign debt burdens in the Eurozone since the 21st century, the most influential factors should be the Greek debt crisis of 2009 and 2010.

Although most people remember the rescue of the International Monetary Fund (IMF) and the European Union (EU), Greek citizens want to withdraw from the EU and re-use Drachma (Greek French currency, replaced by Euro in 2002). But let's take a step back and look at the dynamics of the EU as a major currency in the euro, events that occurred during this period, the price action of the EUR/USD pair, and the price of gold denominated in dollars.

A sovereign state of a larger alliance shares a currency with other member states. The motive of this dichotomy is very inconsistent between the net saver and the net debtor. A basic way of thinking is that when a country’s debt grows to an unsustainable level as a percentage of its GDP, the government cannot issue more money, so the burden of debt falls directly or indirectly on other The state, especially those with net savings.

This has not only caused fiscal imbalances within the League of Nations, but it has also brought about social problems – citizens of the Savings State are hostile to the citizens of the debtor countries, because the heavy debt burden is usually a country that is financially irresponsible. The problem of debt caused by spending more than spending reflects that they cannot effectively manage government affairs. And fundamentally, no German citizen would hope that the euro savings in his hands would be diluted because Greece needed help.

One of the root causes of the Greek debt crisis can be attributed to the global financial crisis brought about by the collapse of the US subprime mortgage market. With the soaring borrowing costs and the exhaustion of financing, Greece has reached a situation where it is unable to pay its debts. The chart below shows that the ratio of Greek debt to GDP is much higher than that of other EU countries.


Eurostat (ec.euroa.eu/eurostat)

On October 4, 2009, George Papandreou of the Greek Socialist Party became the Greek Prime Minister. Soon after, the Papandreou government revealed that Greece's budget deficit will exceed 12%, which was later revised to 15.4% (The Economist). This also led to the credit rating agencies in the beginning of 2010 downgraded Greece's sovereign debt rating to junk status.

From the USD/EUR trading pair, on October 1, 2009, it was 1.4537 USD/EUR, and in the above-mentioned event, the level of June 1, 2010 was 1.2214 USD/EUR, compared with the Euro depreciation of 16.0%. If we compare the dollar price of gold in the same period, we find that the price has risen from $1004.8 to $1227.8, an increase of 22.2%.

Based on the fact that the euro turned into gold during periods of severe pressure, I speculate that a similar conversion to gold during the next euro crisis will have an impact on Bitcoin, assuming that 2% of the money flowing into gold will flow into Bitcoin. .


In May 2010, the International Monetary Fund (IMF) and the European Union (EU) agreed to provide 110 billion euros in exchange for austerity and tax increases, and the euro began to rebound. In addition, the European Central Bank (ECB) has launched the Securities Market Program (www.ecb.europa.eu) to allow central banks to buy government bonds in troubled countries in the secondary market.

Although there are many predictions, some of which vary by as much as 20%, the World Gold Council estimates that as of 2017, the total amount of gold mined reached 187,200 metric tons. At a price of $1291.5 per ounce today, the total value of gold is $7.77 trillion. For conservative estimates, we exclude gold that has been confirmed but not yet mined.

From the chart below, although Greece is still the first, Italy is 132.1%, the gap is not too big, France and Spain are only below the 1:1 level. As we saw in the Eurostat chart in the previous section of this article, Greece reached 130% at the beginning of 2009, making it very vulnerable to any larger macro shock.

I think it is worth noting that the Maastricht treaty, which promoted the birth of the euro, stipulates that no member of the euro zone can limit debt to 60% of GDP, and the annual deficit should not exceed 3 of GDP. %, but these regulations are more or less ignored by member states. According to Reuters, the budget deficit plan for France in 2019 is 3.4%.


Source: tradingeconomics.com

If we assume a debt crisis in Italy, Spain or France, the euro is expected to experience a 16% decline, as it did during the 2009-2010 Greek crisis. Again, for the sake of conservatism, we will not make the Greek GDP of 0.25 trillion US dollars dwarfed by the US dollar GDP indicators of 2018, France, Italy and Spain (2.79 trillion US dollars, 2.09 trillion US dollars and 1.44 trillion US dollars respectively). Adjustment. In the case where other factors will remain the same, the larger the economy will theoretically lead to a sharper depreciation of the euro.

However, due to the different monetary policy environment, the EUR/USD trade is down 50%, and other macro-based reasoning assumptions are bold, so it is difficult to accurately estimate how much the currency will depreciate, but we will insist on during the Greek crisis. The euro will see a 16% decline. Similarly, we also assume that gold prices will also rise by 22%.

Based on the above assumptions, at current prices, gold currently has a market capitalization of $7.77 trillion. A 22% increase in gold prices means that if 2% of the total funds flowing into gold are allocated to Bitcoin, then $1.72 trillion will flow into Bitcoin.

Since these assumptions are difficult to achieve a certain degree of accuracy, I think a better method is to estimate by sensitivity analysis. The following sensitivity analysis table shows (1) the magnitude and use of gold price appreciation. A comparison of the percentage of capital inflows to gold; (2) the percentage of gold inflows will become the value of bitcoin.


The basic situation is that when the price of gold rises by 22%, 2% of the amount of gold inflows will flow into bitcoin, which is 38% higher than the current (April 7, 2019). In the next article in this series, we will explore (1) the corporate bond bubble that is currently developing on the debt and leveraged loan market, and (2) what kind of BTC price appreciation we can get from the bear market events in this area. .

The author "Yuriy Anosov" is translated by "HQ" from the "Blue Fox Notes" community.

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