{"id":19629,"date":"2019-08-05T04:00:00","date_gmt":"2019-08-05T04:00:00","guid":{"rendered":"http:\/\/ci027dc1280000244f"},"modified":"2019-08-05T04:00:00","modified_gmt":"2019-08-05T04:00:00","slug":"as-macro-economy-weakens-is-bitcoin-emerging-as-a-global-hedge","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/markets\/as-macro-economy-weakens-is-bitcoin-emerging-as-a-global-hedge","title":{"rendered":"As Macro Economy Weakens, Is Bitcoin Emerging As A Global Hedge?"},"content":{"rendered":"
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On January 9, 2009, Bitcoin was born on the precipice of the worst global economic downturn since the Great Depression. As the subprime mortgage crisis<\/a> triggered a series of bank bailouts and tumbled international markets into the Great Recession, Satoshi bootstrapped Bitcoin as an ostensible alternative to the system that precipitated this crisis.<\/p>\n

Forged as it was in the fire of an immolated economy, Bitcoin has never weathered a macro economic disaster since. So, whether or not the cryptocurrency emerges as an investment hedge against such an economic crisis \u2014 like its physical counterpart in gold has done \u2014 remains to be seen.<\/p>\n

This narrative, however, is beginning to be tested \u2014 and, some would argue, even affirmed. <\/p>\n

The Digital Gold Standard?<\/h4>\n

Last week, President Trump escalated the U.S.\u2019s trade war with China, announcing<\/a> that Washington would jack up a 10 percent tariff on some $300 billion of Chinese imports. Trump said that the U.S. would levy the new trade tax come September 1, 2019, and increase an existing tariff on $250 billion in goods to 25 percent.<\/p>\n

International and domestic markets reacted adversely. The DOW, NASDAQ and S&P 500 each dropped roughly 3 percent, and the Chinese yuan jumped above the 7-per-dollar threshold for the first time in 11 years (since the onset of the Great Recession), losing 1.5 percent of its value in a day \u2014 the largest drop in four years. <\/p>\n

The macro instability has some analysts forecasting a currency war<\/a>, while others have argued that this instability, along with the contingent trade tensions, will accelerate a looming recession<\/a>. Trump has accused China, which has a seasoned history of manipulating its currency, of artificially dropping the yuan\u2019s price<\/a> in response to the trade war. This comes just a week after the Federal Reserve cut interest rates<\/a> for the first time since the 2008 recession, while President Trump has hinted<\/a> before that he sees weakening the dollar as a viable strategy for bolstering the dollar\u2019s prominence on the global stage.<\/p>\n

Meanwhile, gold has leapt to a six-year high<\/a> and is up roughly 4 percent since last week\u2019s news. Also, the bitcoin price is up nearly 20 percent since last week. <\/p>\n

Bitcoiners have long harped on bitcoin\u2019s viability as a safe-haven asset like gold, but it\u2019s never had the opportunity to prove itself. Not only is the opportunity now presenting itself, but Bitcoin\u2019s digital gold meme is panning out, according to American Institute for Economic Research editorial director Jeffrey Tucker. <\/p>\n

\u201cI\u2019m pretty confident that bitcoin has emerged as a hedge against uncertainty, particularly in international markets,\u201d he told Bitcoin Magazine<\/em>.<\/p>\n

An alum of Ron Paul\u2019s 1980s Congressional staff and the Mises Institute, the Austrian economist believes that \u201cthis has been true since BTC hit $1,000 in late 2013.\u201d Since then, it\u2019s hooked the attention of investors looking for alternative instruments to the foreign exchange market and traditional assets. <\/p>\n

\u201cIt\u2019s been performing in a gold-like way now for some five years,\u201d Tucker continued. \u201cOne might even argue that this is a main reason for the price rise, which is a bit surprising. The expectation that BTC would emerge as a normalize[d] medium of exchange hasn\u2019t panned out, but the perception that it is a store of value has.\u201d<\/p>\n

Speculation on Speculation?<\/h4>\n

Though Tucker is a gold-bug-turned-Bitcoiner, other Austrian economics adherents are less than convinced.<\/p>\n

\u201cI don\u2019t think it\u2019s emerging as a hedge at all. I think there are speculators buying it to speculate that someone might buy it as a hedge,\u201d notable gold proponent and vocal Bitcoin critic Peter Schiff told Bitcoin Magazine<\/em>. <\/p>\n

Though Schiff said that bitcoin \u201cis able to replicate the properties that made gold a better form of money than other commodities,\u201d he also said that \u201cbitcoin [isn\u2019t] a hard asset and \u2026 [isn\u2019t] anything like gold,\u201d arguing that it lacks gold\u2019s underlying demand and utility as a commodity. <\/p>\n

Bitcoin can\u2019t be considered a hedge to weakening assets, he continued, because it\u2019s too volatile; this would be akin to \u201cjumping out of the frying pan and into the fire,\u201d he claims. Adding that the yuan is \u201conly down 2 percent since Trump became president,\u201d he believes that Chinese investors are more likely to buy less volatile assets like gold, the yen and USD.<\/p>\n

Chinese Interest in Bitcoin<\/h4>\n

\u201cNobody in China is going to buy bitcoin because they\u2019re worried about the yuan losing value,\u201d said Schiff.<\/p>\n

But Primitive Ventures co-founder Dovey Wan disagrees. <\/p>\n

\u201cThat\u2019s definitely not true,\u201d she told Bitcoin Magazine<\/em>, calling Schiff\u2019s view an \u201cabsolute.\u201d <\/p>\n

The China-born Wan has offered something of a lens<\/a> for Western Bitcoiners to peep through into the investment habits and sentiment of their Chinese peers. In a recent CoinDesk<\/em> article<\/a>, for example, she clears up a number of misconceptions regarding the Chinese Bitcoin landscape, highlighting that bitcoin ownership is far from banned or dead in her home country. <\/p>\n

While she admitted that it\u2019s hard to quantify \u201cwhether Chinese capital is buying up the price or it\u2019s primarily Western capital buying up,\u201d she noted that over-the-counter trading options now feature a 1 percent premium on bitcoin\u2019s price in yuan. This \u201csays something\u201d about demand among Chinese investors (premiums on the CME bitcoin futures indicate similar demand here in America, one Bloomberg<\/em> analyst noted on Twitter<\/a>).<\/p>\n

Still, a 1 percent premium is nothing major, and Wan thinks it\u2019s \u201cdubious\u201d<\/a> that Chinese investors are leading bitcoin\u2019s latest pump (she hasn\u2019t ruled out macro instability as a contributing factor, but she\u2019s wary about saying that China is leading the charge).<\/p>\n

She told us that \u201cnot everyone holds bitcoin\u201d and that it\u2019s \u201cmore of a hedge for high net worth Chinese.\u201d <\/p>\n

To Schiff\u2019s credit, retail investors are primarily interested in tether, according to Wan, which she described as \u201ca USD proxy with much better accessibility.\u201d She also said that she\u2019s confident the recent jump in gold can likely be attributed to Chinese investors looking for a hedge, as well.<\/p>\n

Those high-net-worth investors, though, still view \u201cbitcoin [as a] relatively long-term hedge toward systemic risk,\u201d and this narrative has become increasingly legitimized in investor eyes in recent memory.<\/p>\n

\u201c[People are] definitely less skeptical compared with two years ago,\u201d she said. \u201cA simple data point\u201d to reference, she continued, is that Bitcoin discussion groups on the popular messaging app WeChat now include legacy investment bulls like Sequoia Capital managing partner Neil Shen.<\/p>\n

Price Trends and Adoption vs. Skeptics<\/h4>\n