Bitcoin as the New Safe Haven

Bitcoin, the bad boy of the global financial markets that, could by some, be considered a safe haven. There may be some way to go for others…
Bob Mason

The Landscape

The ever increasing debate over whether Bitcoin has or is about to become a preferred safe haven continues to draw attention.

With the resurgence of geopolitical risk, since U.S President Trump’s inauguration, there are certainly plenty of reasons for investors to seek shelter.

We have seen the U.S – China trade war not only become an extended one but also escalate. In the past, China may have been willing to concede. With the changing of the guard in the Oval Office, however, there is a different message from Beijing.

Contagion risk has ultimately led to an economic contraction in Germany, the world’s 4th largest economy. Throw in Brexit and the world’s 7th largest economy also contracted in the 2nd quarter…

The trade war has not only led to a slowdown in global economic growth but has also to a rise in cross-border hostility. Trump’s intent to reverse globalization in a single term was not a surprise.

U.S foreign policy has not only ruffled China’s feathers, but also those of Russia, the EU, and Iran to name but a few.

The shift in both the political and economic landscape has led to a fresh wave of interest rate cuts. The latest to move was by the FED, which cut rates for the first time since 2008. There’s the talk of more and the talk of negative interest rates. It wasn’t long ago that the markets shuddered at the prospect of negative rates in Japan.

Why Bitcoin?

An unavoidable outcome to all of this is a currency war that the U.S President himself may ultimately be held responsible for.

Constants call for a weaker Greenback and abuse of appointed FED Chair Powell are now norms for the markets. The PBoC has also shown their intent with adjustments in the setting of the Yuan.

When considering domestic and cross-border issues that are faced by an ever-increasing number of nations, the need for a safe haven less correlated and out of the control of governments and central banks has never been greater.

As economic conditions worsen, restrictions on remittances of fiat money overseas, exchange rate manipulation and more, are material risks.

It isn’t just the average investor that faces these issues. Institutions with cross-border operations also need to consider these factors.

As of now, Bitcoin remains out of the control of governments and central banks. That is assuming of course that the Bitcoin Whales are not the very entities that Satoshi was aiming to be free of…

Risk & Reward

A material downside for Bitcoin is its volatility that continues to reak havoc across the crypto market. For anyone looking for an alternative safe haven to the likes of gold and even the Greenback, 10% swings in a week is far from safe.

While there is significant volatility, there is also an attractive element to an asset class that has absolutely no correlation with other asset classes.

Investing in gold may provide a safety net at times of market strife, but also means that there is the possibility of lost opportunity. The emphasis is on the possibility of…

Year-to-date, gold spot is up by 16.8%. In stark contrast, Bitcoin is up by a whopping 164%. While timing does prove to be everything with the likes of Bitcoin, the opportunity lost by investing elsewhere is significant.

The Bitcoin Whales

As is the case with any asset class, concentration risk must be a factor to consider. Until there is any clarity on the identities of the Bitcoin Whales, market manipulation is a threat. The threat is one that the SEC has taken seriously. The very threat ultimately led to the delay of the Bitcoin ETF approvals.

A safe haven which suffers from significant concentration risk really can’t be considered a safe haven. It isn’t too farfetched to think of governments and central banks forming part of Bitcoin’s top 20 investor list…

Even U.S President Trump could be on the list…

And, finally…

Government Oversight and the SEC

It’s not just volatility that remains a threat to Bitcoin and even its peers. The threat of a global crypto oversight committee and a cohesive regulatory platform remains significant.

Any signs of a material shift in preference and expect governments and regulators to pay greater attention.

There’s no law against holding Bitcoin, in most jurisdictions. So for many, the regulatory threat is limited. It’s the impact on Bitcoin’s value that must continue to be a consideration for those looking for exposure.

As we saw throughout 2018, Bitcoin and the broader market was at the mercy of governments and regulators.

Dmitry Ivanov of Coinspaid says that cryptocurrencies are now on the verge of global acceptance, as illustrated by increased interest from international business companies (Such as Telegram and Gram, Facebook and Libra). Their plans to launch their coins have not only led to increased attention from the general public but also regulators.

Cryptocurrency adoption is occurring at an increasingly faster rate than the rate at which the adaptation process of credit cards and electronic money occurred. Dmitry outlines the reasons being the speed and transaction costs, transparency, lack of geographical boundaries, rolling reserves, low risk of fraud and chargebacks.

Dmitry is the CBDO of CoinsPaid, which provides the services of processing payments, storage, and implementation of digital currencies for entrepreneurs and private individuals.

Coinspaid’s goal is building a safe, transparent, and at the same time a simple payment infrastructure that allows its clients to freely convert crypto to fiat and vice versa and transfer funds into bank accounts or cards.

Strategize

It, therefore, comes down to the consideration of risk and reward and threat to net worth.

Talks of Bitcoin being a bubble have abated, which is positive. Also,  while Bitcoin still sees marginal use relative to fiat money, it is on the rise.

The lack of correlation is an enticing one to consider, as is the significant volatility and undeniably sizeable returns.

To consider the fact that an investor would have doubled their investment in 8 months is mind staggering. After all, Bitcoin is not a new kid off the block…

The volatility can be considered a red flag. It does, however, allow investors to allot a smaller allocation to counterbalance any headwinds from elsewhere. A smaller allotment can also be considered damage control…

So, a balanced portfolio including Bitcoin seems sound. And yes, while Bitcoin may collapse to $3,000 levels, there appears to be plenty of support to drive it back up to $10,000…

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