Amid the ongoing banking crisis in the United States, cryptocurrencies have emerged as a safe haven, according to Cathie Wood, CEO of asset management firm ARK Invest. Wood criticized the Federal Reserve’s inability to prevent bank runs and blamed their policy failure for the current crisis, which has led to the downfall of banks such as Silicon Valley Bank (SVB) and Signature.
In a Twitter thread on March 16, Wood pointed towards the asset-to-liability mismatch, which is typical for banks but was untenable in the current scenario. Deposits were leaving the banking system for the first time since the 1930s, and securities earnings for banks were only 1-2% against deposits paying 3-5%, which eventually became untenable as deposits started leaving the system. Some banks were forced to sell held-to-maturity securities, recognizing losses that depleted their equity accounts.
Wood argued that the ongoing crisis wasn’t forced by cryptocurrency, as the ecosystem has been under heavy scrutiny since FTX’s downfall, leading to a severe regulatory crackdown. She said that regulators are using crypto as a scapegoat for their own lapses in oversight of traditional banking.
Wood has long been a known crypto proponent, often reflected in her company’s investment in emerging markets – especially crypto. She projected crypto as a solution to the central points of failure, the opacity, and the regulatory mistakes in the traditional financial system. As the scapegoat for policy mistakes, crypto will move offshore, depriving the U.S. of one of the most important innovations in history.
The current banking crisis would not have been possible in the decentralized, transparent, auditable, and overcollateralized crypto asset ecosystem, according to Wood. Cryptocurrencies have shown themselves to be a safe haven amid the U.S. banking crisis, with Bitcoin and Ether touching new multimonth highs. As traditional banking continues to struggle, it’s clear that cryptocurrencies will play an increasingly important role in the financial landscape of the future.
Bitcoin (BTC) may be down over 30% from its record high of $69,000, but it has emerged as one of the best-performing financial assets in 2021. BTC has bested the U.S. benchmark index, the S&P 500, and the gold.
Arcane Research noted in its new report that Bitcoin’s year-to-date (YTD) performance came out to be nearly 73%. In comparison, the S&P 500 index surged 28%, and gold dropped by 7% in the same period, which marks the third year that Bitcoin has outperformed.
Bitcoin vs. S&P 500 vs. Gold in 2021. Source: Arcane Research, TradingView
At the core of Bitcoin’s extremely bullish performance was higher inflation. The U.S. consumer price index (CPI) logged its largest 12-month increase in four decades this November.
“Most economists didn’t see the high inflation coming, as witnessed by the 1-year ahead consumer inflation expectations,” the Arcane report read, adding:
With its 73% gain in the highly inflationary 2021, Bitcoin has proven itself to be an excellent inflation hedge.
Inflation 2021: Actual CPI vs. Expected CPI. Source: BLS, New York Fed
Bitcoin holdings grew among institutional investment vehicles
Loose monetary policies and a sustained fear of higher inflation also prompted mainstream financial houses to launch crypto-enabled investment vehicles for their rich clients in 2021.
Arcane reported an inflow of 140,000 BTC (~$6.56 billion) across spot- and future-based Bitcoin exchange-traded funds (ETF) and physically-backed exchange-traded products (ETP) this year.
Bitcoin exchange-traded fund holdings. Source: ByteTree, Arcane Research
That prompted more Bitcoin units to get absorbed into investment vehicles, underscoring a greater institutional demand for the cryptocurrency.
In contrast, gold-backed ETFs witnessed an outflow of $8.8 billion in 2021, according to World Gold Council’s report published this December.
Global gold-backed ETF flows. Source: World Gold Council
Volatility behind superior performance?
Nonetheless, Bitcoin’s relatively superior performance in 2021 has included periods of high volatility.
Many analysts believe that extreme price fluctuations keep Bitcoin from becoming an ideal inflation hedge. That includes Leonard Kostovetsky, a finance professor at Boston College, who recalled in his blog post that there had been 13 days in 2021 on which the BTC price has moved over 10% in one direction. Excerpts:
“It seems strange to think that a person who is worried about holding dollars because they lost 7% of their value over the last year would be comfortable holding Bitcoin which could (and often does) lose that much value in a single day.”
Arcane too recognized Bitcoin for being more volatile than the S&P 500 in 2021, noting that the cryptocurrency “behaved like a risk-on asset” by merely amplifying the most significant stock market movements.
The researcher cited VIX — a measure of the expectation of volatility based on S&P 500 index options — to exemplify the relationship between Bitcoin and stock markets. It noted that the BTC price fell hard whenever the VIX readings spiked in recent times, underscoring that institutional traders viewed Bitcoin as a risk-on asset.
Bitcoin vs. VIX. Source: Arcane Research, TradingView
As a result, Bitcoin’s potential to fall harder in the wake of a stock market correction also became higher. Arcane too noted that a bearish 2022 for the S&P 500 may end up wiping a big portion of Bitcoin’s gains.
“Therefore, be aware of stock market headwinds in the next year and their possible implications for bitcoin’s short-term price trajectory,” it added.
Related: Arcane Research releases its crypto predictions for 2022
But hedge fund manager Chris Brown went far in predicting an all-and-all Bitcoin doom in 2022. The Aristides Capital’s managing member stated that cryptocurrencies could face massive selloffs ahead as the U.S. Federal Reserve ends its $120 billion a month asset purchasing program followed by three rate hikes next year.
BTC/USD weekly price chart versus Federal Reserve balance sheet. Source: TradingView
“If the Fed really does hike rates enough to make money considerably less loose, or if markets believe they will, you are going to see certain areas of speculation come to a screeching halt,” Brown said, adding:
The prime example of such asset speculation is cryptocurrency; here lies $2.64 trillion of ‘wealth’ that is backed by nothing and generates no cash flows.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
Bitcoin (BTC) continues making significant strides because it has been smashing historic highs one after another this quarter. For instance, the leading cryptocurrency recently broke its previous record of $68,500 by hitting $69K.
Institutional investment has played an instrumental role in this rally as big money moves continue trickling in the BTC network.
Lucas Outumuro, the head of research at IntoTheBlock, believes that this price surge is boosted by the fact that Bitcoin is showcasing itself as an inflation hedge. He explained:
“The thesis of Bitcoin as an inflation hedge is strengthening. BTC hit a new all-time high around $69k following the release of U.S. inflation reaching the highest in 30 years.”
Why has the urge for inflation hedges gone a notch higher?
With the onset of the Coronavirus (Covid-19) pandemic in early 2020, economic turmoil across the globe emerged based on massive layoffs as social distancing and travel restrictions took effect.
As a result, governments like the United States adopted financial initiatives like quantitative easing or printing more money to caution its citizens against the economic effects triggered by the pandemic. For instance, the American administration printed more than $6 trillion for this purpose.
The ripple effect of this decision entailed high inflation rates based on factors like the US Dollar Index (DXY) slipping to a 32-month low in December 2020.
As many investors faced an uncertain future, Bitcoin emerged as a leading alternative to fill the void as a hedge against inflation in the long term.
For instance, Bitcoin has increased by more than 1715%, from lows of $3,800 recorded in March 2020 to highs of $69,000 attained recently.
Meanwhile, $10.796 trillion has been transferred on the BTC network so far in 2021, according to on-chain analyst Dylan LeClair.
Time will tell how Bitcoin continues to play out as the year inches to a close.
Bitcoin adoption in Afghanistan has increased as citizens seek stability in the face of cash shortages and rising prices after Taliban takeover.
Afghans have been resorting to bitcoin for storing and exchanging value since the Taliban took over control of most of the country. On August 15, hundreds of residents of Kabul, the country’s capital, rushed to banks to withdraw money as Taliban fighters took over the city demanding the government’s surrender – but only to hit a brick wall. Cash shortages, intense restrictions, and an ever-devaluing local currency have pushed Afghans to seek alternatives and find bitcoin.
“A nation-wide cash shortage, closed borders, a local currency touching record lows, and rapidly rising prices of basic goods; that’s why some Afghans I spoke to are turning to cryptocurrencies like bitcoin,” said MacKenzie Sigalos from CNBC.
Cryptocurrencies have been the most sought-after solution, given their digital nature, for those who seek some monetary sovereignty to flee the country, according to CNBC and data from Chainalysis. Some Afghans have chosen to adopt bitcoin to safeguard their money, build and preserve wealth, and achieve high sovereignty to flee the country with their savings. Others have been gambling on cryptocurrencies, desperately seeking to increase their income during Afghanistan’s current crisis.
Afghanistan has seen increased bitcoin adoption despite significant barriers its citizens often face, including limited access to the internet and frequent power outages. Among the 154 countries analyzed by Chainalysis’ global bitcoin adoption index 2021, Afghanistan ranked in the 20th position. The index, which considers each country’s purchasing power parity (PPP) per capita as a weighting factor, accounts mainly for bitcoin usage by ordinary people rather than institutional and professional players. In peer-to-peer trading terms, Afghanistan ranked even higher, figuring in the seventh position.
Over time, Bitcoin can better preserve value and increase purchasing power than national fiat currencies and other cryptocurrencies. With a limited supply and a predictable monetary policy, the world’s only peer-to-peer electronic cash is uniquely positioned to empower the unbanked, those under authoritarian regimes, and those facing unfavorable economic policies and currency debasement. As Afghans are denied access to their rightful fiat savings due to cash shortages, some have already started getting up to speed with bitcoin, allocating their family savings to the most tangible form of money they can access. Bitcoin is the definitive answer to help them secure financial sovereignty and preserve wealth for generations to come.
Gold is set to outperform Bitcoin (BTC) in the second quarter of 2021.
An ounce of gold has surged from $1,707.45 on April 1 to over $1,750 in the still-running June 30 session. That marked a roughly 3.9% jump over the quarter. Meanwhile, Bitcoin has plunged by more than 40% to below $35,000 after topping out near $65,000 in mid-April, all in the same period.
The inverse correlation between Bitcoin and gold markets surged specifically in April and May 2021. Analysts at JPMorgan noted in May that large institutional investors rotated their money out of the overvalued crypto markets to seek upside opportunities in gold.
Referring to the Bitcoin Futures data on the Chicago Mercantile Exchange (CME), JPMorgan analysts said that investors have been liquidating their positions from as back as October 2020. Meanwhile, capital inflows into gold-enabled exchange-traded funds have increased in correspondence to Bitcoin market outflows. An excerpt from the report reads:
“The bitcoin flow picture continues to deteriorate and is pointing to continued retrenchment by institutional investors. Over the past month, bitcoin futures markets experienced their steepest and more sustained liquidation since the bitcoin ascent started last October.”
Bitcoin and gold trended almost inversely in the first two months of Q2. Source: TradingView.com
The bank noted that institutional investors may have treated Bitcoin as an overbought asset, especially as the flagship cryptocurrency surged from $3,858 in March 2020 to just shy of $65,000 by April 2021—a 1,584% gain. Meanwhile, gold topped out at $2,075.82 per ounce in August 2020, after which it dropped to as low as $1,676.866 an ounce in March.
Safe-haven fight
The rotational investment strategy from Bitcoin to gold also picked momentum after Elon Musk criticized the cryptocurrency for its carbon footprints, insomuch that he suspended accepting it as payment for his Tesla electric car range.
On May 19, right after Musk doubled down his attack on the Bitcoin market, stating that he might have Tesla unload its entire $1.5 billion BTC stash, Bitcoin crashed by roughly 30%. The bearish bias increased also after China announced a complete ban on cryptocurrency activities, including mining-related operations that contributed a large chunk of the Bitcoin network’s total computing power.
Bitcoin closed the May session at a 35.5% loss. On the other hand, gold benefited from the FUDs in the crypto market, rising 7.6% in the same month.
Investors picked gold over Bitcoin as a safer haven also as they feared higher inflation is around the corner. As a result, the precious metal surged 3.78% in April as consumer prices in the US rose at their best momentum in over a decade, to 4.2%. The next month—as stated above—saw gold continuing its rally alongside a similar upside tick in the consumer price index, which surged to 5%.
Core PCE, the Federal Reserve’s preferred metric to gauge inflation, jumped to at an annual rate of 3.4% in May, the highest in 29 years.
Jerome Powell, the Federal Reserve chairman, appeared adamant about the rising inflation as he called the price rises “transitory in nature.” He further stressed that the central bank would maintain its expansionary fiscal programs to protect the U.S. economy against the economic aftermath of the coronavirus pandemic.
Fed has been keeping interest rates near zero and has been purchasing $120 billion worth of government bonds and mortgage-backed securities every month since March 2020.
Bloody June
June appeared as the only month in the second quarter that saw Bitcoin and gold trending in tandem.
Bitcoin and gold attained a positive correlation in June against Fed’s surprising hawkish tone. Source: TradingView.com
The assets traded flat in days approaching the Federal Open Market Committee’s two-day policy meeting in June’s second week. Fed officials announced that they might hike interest rates twice by the end of 2023, a year earlier than anticipated, to contain excessive inflation rates.
Both Bitcoin and gold fell in tandem after the Fed’s hawkish tone. Gold, in particular, looked at prospects of logging its worth monthly performance in June since 2016. It was down 7.42% at publishing time.
Meanwhile, Bitcoin had fallen by more than 8.5% in the same period.
What’s next for Bitcoin and gold?
A survey of leading economists conducted by Financial Times found that a majority of them expect the Fed to raise interest rates at least twice by the end of 2023, aligning accurately with the central bank officials’ dot plot.
Economists expect 50 basis point higher rates by December 2023. Source: Financial Times
Carsten Fritsch, an analyst at Commerzbank AG, recommended watching the US dollar to gauge gold’s strength in the coming sessions, noting that June’s major drag on the precious metal appeared because of a strengthening greenback.
The U.S. dollar index, a benchmark to measure the dollar’s strength against a basket of top fiat currencies, rose to a one-week high at 92.433 on Wednesday.
US dollar index reaches one-week high as gold falls. Source: TradingView.com
“Gold repeatedly failed to overcome the 100-day moving average in recent days, which was a bearish sign,” Fritsch told Bloomberg. “There is a risk now that so far, patient ETF investors jump on the bandwagon and sell their holdings. This would amplify the downward move.”
At the same time, Bitcoin bulls received similar warnings as the cryptocurrency grappled repeatedly with the risks of falling below $30,000, a psychological support level.
Jill Carlson, a venture partner at Slow Ventures, told CNBC that institutional outflows from the Bitcoin markets had picked momentum recently, adding that traders need to be “cautiously bullish” on the cryptocurrency.
Clem Chambers, the CEO of financial analysis portal ADFVN.com, predicted another leg down for Bitcoin, noting that breaking below $30,000 would put the cryptocurrency on the path toward $20,000.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
Bitcoin (BTC) is continuously making notable strides because its current bull run has made its market value a stone’s throw away from the $1 trillion mark.
The leading cryptocurrency is currently trading at $51,799.94, with a market capitalization of $964 billion, according to CoinMarketCap.
Bitcoin outperforming traditional assets
Bitcoin’s uptrend is indicative of the cryptocurrency outperforming more traditional assets like stocks and gold, as its continuous battle with the latter for the status of safe-haven asset seems never-ending.
Market analyst Holger Zschaepitz recently disclosed that gold dropped to a price lower than $1,800 whereas BTC broke the record by surpassing the $51,000 mark. He explained:
“Looks as if Bitcoin is eating Gold. While the cryptocurrency hit fresh ATH >51k, Gold has dropped <$1800.”
Bitcoin’s value has gone through the roof because it has surged by at least $415 billion in 2021 alone thanks to institutional investors, corporate treasurers, and speculators.
BTC’s momentous growth is continuously cementing its status as an inflationary hedge as it eyes the $60,000 mark. Crypto analyst Joseph Young believes that its price and value will be sustained in the long run.
Fear of missing out comes to play
Shane Oliver, the head of investment strategy at AMP Capital Investors, believes that the fear of missing out (FOMO) may be a factor contributing to Bitcoin’s uptrend. Corporate giants like Microstrategy have emerged to be big BTC spenders, as evidenced by its balance sheet of over $1.3 billion in Bitcoin.
Institutional investors have served to fuel FOMO, paving the way with their overwhelming appetite for the leading cryptocurrency. As Bitcoin’s dominance continues, the top crypto has been undergone the third parabolic advance in its history with a target of $240,000.
It seems as though BTC is on a journey to the moon because the consolidation it has been witnessing since January has made $48,000 the new support level.
Francis Suarez, who has served as the mayor of Miami since 2017, wants to make the city the most attractive in the United States for those in the crypto and blockchain industry.
In an interview with Forbes published Sunday, Suarez said lawmakers in Miami were looking into the policies of crypto-friendly areas like Wyoming and New York in an effort to promote regulatory incentives for crypto and blockchain in Florida.
“[Miami is] making sure that we have the most progressive crypto laws,” said Suarez. “We want to make sure that we believe that if all things are equal, we win. So, we just want to equalize the playing field. We want to make sure that nobody has an advantage over us based on laws that are easily changeable.”
Mayor Suarez did not describe the race to be the regulatory winner as a fight between lawmakers in other jurisdictions. Rather, he gave Wyoming “kudos for being smart” in attracting crypto firms, but added that “every city in America and in the world should be trying to grow its technology ecosystem.”
“We’re working on making sure that our incentives are in place and that our legislation promotes crypto and blockchain and is forward-thinking.”
The mayor has already made several bullish statements on Bitcoin (BTC) and crypto in recent weeks, including having Miami consider letting city employees to get paid in BTC rather than U.S. dollars. He also proposed allowing Miami residents to pay for local fees and taxes using crypto as well as investing some of the city’s treasury into Bitcoin, a task he called “the hardest” of the three ideas.
He has already spoken with a few high-profile figures in the crypto community including a meeting with Gemini co-founders Tyler and Cameron Winklevoss. Earlier this month, Tyler said that the mayor is “leading the way for governments and Bitcoin.”
Mayor Suarez did not provide a timeline as to when these actions may take effect for Miami’s 450,000 residents, but some in the crypto community have seemingly taken notice. Last week, Bitcoin 2021 announced it would be moving from Los Angeles to Miami for its June crypto conference.
The price of Bitcoin has experienced a significant rise in the past few days, recently surging above $40,000. Chamath Palihapitiya, the renowned billionaire, venture capitalist, and founder and CEO of Social Capital venture capital firm, has described Bitcoin as a hedge against global uncertainty.
In an interview with CNBC, Palihapitiya cited a possible five or ten-year time horizon before Bitcoin would likely hit $200,000 in value. He explained that this was partially due to the lack of trust in governments. Palihapitiya said:
“The reason is because, every time you see all of this stuff happening, it just reminds you that wow our leaders are not as trustworthy and reliable as they used to be.”
He further stated: “So just in case, we really do need to have some kind of, you know, insurance we can keep under our pillow that gives us some access to an uncorrelated hedge.”
Governments across the globe have embraced various measures to tackle the economic impact caused by the COVID-19 pandemic. For example, the US has mass-printed fiat for stimulus packages and economic relief, triggering a depreciation of the world’s de facto currency, the USD.
In comparison with the dollar, Bitcoin has distinct underlying fundamentals that are not affected by the economic and health situation triggered by the coronavirus. Since the leading cryptocurrency is borderless and run by people, it allows holders to control their funds by themselves – with no centralized authority required. It has also been touted as a hedge against inflation by numerous market bulls.
In October last year, Fidelity Digital Assets investment company published a report showing Bitcoin’s lack of price correlation to other mainstream financial assets like stocks, gold.
Palihapitiya mentioned: “It’s (Bitcoin) going to eventually transition to something much more important, but for right now, you’re just getting all these data points that prove this thing.”
He further said: “The fabric of society is frayed, and until we figure out how to make it better, it’s time to just have a little schmuck insurance on the side, and everybody’s running in. It’s just an incredible thing.”
Bitcoin Possesses Safe-Haven Asset Qualities
Bitcoin serves as a hedge against uncertainty. Typically, uncertainties are situations where the odds cannot be calculated. Unqualifiable uncertainty, such as the rise in inflation, can be hedged against with Bitcoin. The leading cryptocurrency has qualities that make it an ideal safe-haven asset.
First, it has a high degree of accessibility that makes anyone able to send and receive funds in a permissionless way. On the other hand, fiat currencies are subject to a high degree of uncertainty as they rely on third-party custodians to verify their transactions. Secondly, the fixed cap of Bitcoin supply at 21 million BTC minimizes the uncertainty affecting all fiat currencies that depend on central banks’ monetary policies.
By exercising the power to print an unlimited amount of money, governments deliver economic relief at the risk of depreciating fiat, therefore increasing the instability of currencies.
Bitcoin (BTC) has enjoyed a rollercoaster ride in recent weeks by hitting a record-high of $34,800 even though it has corrected to $31,079 at press time. Leading American bank JPMorgan Chase & Co. believes that this uptrend might be the tip of the iceberg in the long-term if the leading cryptocurrency is able to continue to steal market share and public support from traditional safe-haven asset gold.
Bitcoin faces an uphill task
JPMorgan strategists noted that BTC will have to increase its current market capitalization of about $575 billion by 4.6 times to hit the theoretical price of $146,000. By doing so, it will match gold’s total private sector investment in the form of bars and coins or exchange-traded funds.
The strategists led by Nikolaos Panigirtzoglou acknowledged:
“A crowding out of gold as an ‘alternative’ currency implies big upside for Bitcoin over the long term.”
They, however, noted that volatilities between BTC and gold could not converge in the short-term, thus the price target of $146,000 was not achievable in 2021. They stated:
“A convergence in volatilities between Bitcoin and gold is unlikely to happen quickly and is in our mind a multiyear process. This implies that the above-$146,000 theoretical Bitcoin price target should be considered as a long-term target, and thus an unsustainable price target for this year.”
A trade-off is required
JPMorgan believes that if BTC will continue cementing itself as an inflationary hedge, this could edge out gold by driving more investment flows into the leading cryptocurrency.
BTC and gold are taking part in a neck and neck race of wooing investors as safe-haven assets with the latter taking a beating as its investment outflows hit a record $9.2 billion in November 2020.
The leading American bank also sees headwinds for BTC based on indicators like a buildup of speculative long positions and a rise in crypto wallets holding small amounts of Bitcoin. Big four accounting firm PricewaterhouseCoopers (PwC) recently acknowledged that big investors were the driving force behind Bitcoin’s notable surge.
After reaching levels never seen before, Bitcoin (BTC) has become the talk of the town after breaching the $22,000 level as it is currently trading at the price of $23,165 at the time of writing, according to CoinMarketCap.
Investment giant Goldman Sachs has delved into the issue of how Gold and Bitcoin can coexist together because the latter is continuing to cement its status as a safe-haven.
Bitcoin steals the show as gold takes a beating
The recent BTC’s bull run is continuing to woo institutional investors to join the Bitcoin bandwagon, and this has seen the price go through the roof. For instance, on-chain data provider Glassnode recently revealed that BTC addresses with at least $1 million went parabolic after surging by 150% to stand at 66,540.
Gold has been taking a beating, and its underperformance has become a concern to many investors. Digital asset manager CoinShares noted that investment outflows from gold hit a record $9.2 billion in November.
Goldman Sachs believes that these statistics should not raise eyebrows about Bitcoin replacing gold as an inflationary hedge based on its rising popularity. The leading bank acknowledged:
“Gold’s recent underperformance versus real rates and the dollar has left some investors concerned that Bitcoin is replacing gold as the inflation hedge of choice. While there is some substitution occurring, we do not see Bitcoin’s rising popularity as an existential threat to gold’s status as the currency of last resort.”
Coexistence is of the essence
Goldman Sachs asserted that the coexistence between gold and Bitcoin was key even if more investors are giving the latter a keen eye. Institutional investors have been giving BTC an “outrageous demand” based on their spending spree and this has caused the price of the leading cryptocurrency to skyrocket by more than 15% in the last 24 hours.
Nevertheless, crypto trader, Edward Morra, has stated that caution shouldn’t be thrown to the wind because some Bitcoin whales are flashing red flags about the existence of sell walls, which indicate their willingness to cash in some profit.
