Bitcoin just hit a new 10-month high of $8,000. With the rally of these past few days shows no signs of slowing down, we ask whether part of the reason could lie in the current turmoil in the mainstream markets?
If we take a look outside of the world of crypto and look at the wider markets, they’ve had a torrid time in recent days. “US stocks fall sharply as US-China trade war escalates” is the headline in the Financial Times as stock markets yesterday suffered one of the worst falls of the year. In Europe, Brexit continues to weigh on the market as no end is in sight to the negotiations. Even the tech markets, which goes through its own cycles of boom and bust, seems to be suffering with Uber falling on its IPO and continuing to disappoint.
This is causing investors to look elsewhere for growth.
Risk assets will always be risky, but investors are starting to see Bitcoin and other digital assets as a valid “hedge” – or bet – against the mainstream markets.
Jose Macedo, Head of Advisory at AmaZix, explains: “I see it [the current trade wars] as a huge boost to crypto. In fact, I’d say that having no crypto in an investment portfolio is a big risk right now.
“Bitcoin is a great hedge against mainstream markets due to its lack of correlation with other assets, including gold. Adding bitcoin to a portfolio increases its Sharpe Ratio [the return of an investment per unit of risk], so it increases risk-adjusted returns considerably even with only 1% added.
“With the fed lowering rates again, investors are hungry for growth. They are actively looking for alternative risk assets, and with Bitcoin’s long-term potential as a store of value to rival gold, its lack of correlation with other asset classes, combined with developments in layer-2 payments technology such as The Lightning Network, its future is very bright.”
“I think this rally is the tip of the iceberg for where Bitcoin and the crypto markets will go.”
In times of uncertainty, the usual safe haven is gold. Perhaps this week will be considered the first time that digital gold – Bitcoin – has acted as the new modern safe haven for assets.