In 2017, the rise in the price of Bitcoin and cryptocurrency was backed purely by speculation that led to the formation of the bubble. These characteristics are familiar with emerging assets. Furthermore, with the institutional set-ups for investment in Bitcoin, the demand has to be different speculation alone.
Bitcoin’s Correlation with FIAT Currencies
The recent hike in the price of the Bitcoin [BTC], just coming off of a bear market, can be attributed to the global economic tension. The US-China trade war has harmed the Chinese yuan; a ‘negative correlation has been observed between Yuan and Bitcoin [BTC] prices. Bitcoin is rising as the confidence in Yuan is shaking.
Christopher Vecchio Senior Currency strategist, DailyFX.com told the media,
“In an environment where the global financial system looks like it is potentially at risk because of the world’ two largest economies going at odds. People may be looking for an alternative avenues to find ways to circumwent the capital controls put in place.”
Furthermore, the relation between Bitcoin and the emerging market currency has also been stable since September last year. He also noted that the correlation between the Turkish Lira reached 0.78, which is significant.
The world economy is showing a sort of weakness with significant events in the global with Brexit and the exit of British Prime Miniter Theresa May, the sinking Italian economy, hyperinflation in the Latin nation and so on. The US China-Trade War poses the biggest threat of all. Dai Xianglong, former governor of the People’s Bank of China, said
“If the China-U.S. trade war continues to grow larger, it may cause the global economy to decline, and may cause a global financial crisis,”
Whenever such tumultuous times arrives, investors and central banks have resorted to gold to hedge against the losses in their currencies. It is evident with the correlation statistics that the trend might be shifting to Bitcoin. The volatility in gold has been low since the beginning of the year compared to the economic tension and Bitcoin price.
Do you think that Bitcoin will replace gold? Please share your views with us.
Nivesh from Engineering Background is a full-time Crypto Journalist at Coingape. He is an atheist who believes in love and cultural diversity. He believes that Cryptocurrency is a necessity to deter corruption. He holds small amounts of cryptocurrencies. Faith and fear are two sides of the same coin. Follow him on Twitter at @nivishoes or mail him at nivesh(at)coingape.com