Grayscale Investments provides a trust fund for investment in digital assets like Bitcoin. It one of the most prominent authorized Trusts for digital currencies in the US. The #dropgold campaign initiated by Grayscale made a profound impact on the investors.
According to Grayscale’s recent Performance and Risk Monitor report, GBTC – Grayscale BTC index projects an annualized growth of 84%, after accounting for the annualized Risk percentage during the last financial year.
Moreover, this year, the growth has been further accentuated by the global tension created due to the US-China trade war. The firm has released a new report, hypothetically analyzing the effect of the economic stress on Bitcoin compared with other investment assets.
In the study, the analysts have divided Bitcoin’s rise into two phases – Before and after 5th May 2019. The significance of May 5 is that it officially saw Trump increase trade tariffs on China, with China retaliating days after. The report cited,
“…on May 5, when U.S. President Donald Trump announced a tariff increase on $200 billion of annual Chinese imports – from 10% to 25%.8 In response, Beijing announced its own series of retaliatory tariffs (from 10% to 25%) on $60 billion of American goods.”
According to their hypothesis, the unprecedented rise in Bitcoin is because of the increasing tension between the world’s largest economies. The report estimates suggest that,
Moreover, the case study also analyzed the effect of the increased tariffs on other investment assets. According to their findings, only ‘traditional wealth preservation assets’ like Gold, Japenese Yen, Bonds, and Swiss Franc yielded a positive growth. While major foreign currencies, including the S&P 500, were on the losing side.
The correlation between the drop of Chinese Renminbi and Bitcoin’s rise also showcased a strong correlation during the same period.
Grayscale’s Hypothesis accredits about 75% of 2019 gains in Bitcoin to the rising tension between the US and China.
Nevertheless, the above analysis is based on the assumption that the US-China trade war is the reason behind the rise. Moreover, even if the hypothesis is correct, it does not become an indicator of the future performance of the assets under similar conditions.
The volatility, regulatory, and security risks associated with Bitcoin are still prominent. Bitcoin is not only an uncorrelated asset but also an unregulated asset around the world. The ambiguity around its taxonomy, use, and security are still persistent.
Do you agree with their hypothesis? Please share your views with us.