Retail and institutional investors worldwide have found an alternative asset class to protect their portfolios amid U.S-China trade wars; it’s called Bitcoin.
Bitcoin has staged an astonishing price rally in recent days, breaking US$12,000 early this morning. The world’s largest cryptocurrency is surging while equities markets across North America, China and other major economies are tumbling as trade war tensions continue to escalate. In an interview with Bloomberg, Managing Partner of Kinetic Capital said, “Bitcoin is increasingly seen not only as a bet on the future, but as a shelter for the present.”
The ongoing trade war between U.S. and China is showing increasing strain on stock prices, with China releasing it’s latest weapon in the war: devaluing its currency. The Chinese Yuan fell below 7 Yuan per US Dollar for the first time in over 10 years, prompting the United States to accuse China of currency manipulation. Since the Yuan is not freely traded and controlled by its central government, China can limit the Yuan’s price fluctuation against the US dollar. A weaker Yuan price allows Chinese exports to remain competitive despite increased tariffs on imports entering America, however, this move carries other risks. A devalued Yuan will very likely cause a surge in China’s inflation – forcing Yuan currency holders to protect their portfolio by shifting their investments to an alternative asset class. Loose government monetary policy coupled with Bitcoin’s monetary policy that’s already predetermined and set in stone when the network launched in 2009 is fuelling investor attitudes that Bitcoin is becoming an extremely valuable hedging tool. It continues to show a reduced dependence on our centralized financial system.
Jake Chervinsky, a Washington-based cryptocurrency lawyer, tweeted on Tuesday that “Bitcoin is doing exactly what it’s designed for today: Fed cuts interest rates, making money cheaper. China devalues yuan, escalating currency war. Dow falls 760 points, losing January 2018 highs. Bitcoin rises 7.5%. If you’re surprised, you haven’t been paying attention.” Chervinsky’s comments caught the attention of mainstream media, with CNBC publishing an interview with Agecroft Partners CEO and summarized that Bitcoin’s hedging properties make it a very attractive asset class as a long-term store of value.
With 85% of all Bitcoin being mined, the coin’s value could continue to increase over time based on the combination of Bitcoin’s scarcity and limited supply of 21 million coins, coupled with increasing investor demand for Bitcoin as a hedge again quantitative easing, cutting of interest rates, and other monetary policies implemented by central governments worldwide.