Bitcoin is feeling the same effects as the rest of the globe. Both markets and households are affected by the current geopolitical environment. Bitcoin’s value seems to hinge on whether or not it is still able to act as an inflation hedge. February has proven otherwise.
Geopolitics and Bitcoin
A report by QCP Capital points out that, historically, the has been a poor correlation between BTC and Gold prices, which puts into question if the digital asset can be treated as a hedge against inflation to help protect the value of investments and individuals’ savings.
All around the globe, sanctions against Russia are likely to be felt. The global oil and gas market has already seen a surge and is expected to continue rising. As the economic effects of the pandemic are met with war, inflation increases.
Investopedia explains that “Assets that are considered an inflation hedge could be self-fulfilling; investors flock to them, which keeps their values high even though the intrinsic value may be much lower.”
Gold has long been the best-known inflation hedge asset. And bitcoin has been long-described as “digital gold”, but the little correlation between them during times of risk-off means the digital asset has traded more like “a high-beta leveraged risk asset with a strong correlation to Tech and NASDAQ.”
As we move into what looks to be a pivotal moment for blockchain technology and the crypto market, however, there are other things that you need to consider.
The report further notes that “where BTC has more crucial macro use-case now is its ability to serve as the primary weekend hedge for event risk, while traditional markets are closed.”
It provides spot and options liquidity 24/7, making it a great last-resort hedge for traders that previously traded in the middle east. Bitcoin is also known to have downside risk and can be opened before the other markets.
NewsBTC also reported that Gold was outperforming Bitcoin following Russia’s attack on Ukraine. However, the digital currency regained its dominance after recovering to $40,000 last week, while Gold fell.
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While at firsts investors ran to gold amidst geopolitical concerns, it is precisely in these times of turmoil when bitcoin makes its case as it is more accessible, easy to move, and use –as a form of money–than gold.
BTC is rallying today
Fox Business Live’s Peter Schiff (CEO Euro Pacific Capital) and Layah Heilpern (journalist), the stockbroker continued to hate BTC and prefer gold. He has claimed for years that the digital asset will slump to $0 and that it “is not going to hedge against anything.”
Heilpern had her bitcoin arguments more than ready and slammed back saying that Schiff’s projection has never come to a realization and the fundamental value of bitcoin has been working perfectly during this year’s turmoils:
“You can’t trade peer to peer in gold. Bitcoin is literally an alternative monetary system.”
As Heilpern explained, you cannot send donations to Ukrainians –or anyone– in gold; you cannot flee a country carrying gold bars.
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According to reports, many Ukrania-Russian civilians have begun using Bitcoin amid frozen bank accounts because both countries have been severely affected by the war that they didn’t start.
The war will also increase U.S. inflation, which is why the case for Bitcoin remains open, as mass adoption of Bitcoin could shift the narrative completely in its favor.
The digital currency has seen a surge in value today. Trader Sven Henrich sharedThis is his opinion on the Bitcoin rally. Expert says there are four reasons why it is happening:
- Fundamental: “Adoption & acceptance continues to expand, i.e #ebayBut also institution. I believe this path will continue. There is no sign of regression, but continued expansion.”
- Sentiment: “The Ukraine crisis highlights how Bitcoin can act as a support mechanism to raise funds when traditional avenues are cut off. Blockchain & decentralized money to become more relevant.”
- Technical: “Bitcoin made a higher low versus equities in February showing a positive divergence & defense of a key trend. Start of correlation decoupling process?”
- Safety Trade: “Sanctioned money may seek Bitcoin as a safe haven (unconfirmed) This also invites risk as it gives an excuse to accelerate regulation (long term positive/short term risk).”
