Sunday, 15 September 2019

Are investors turning to Bitcoin as a safe haven?

Some financial experts believe investors are looking to the cryptocurrency

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As uncertainties caused by the US-China trade war and Brexit hit the global stock market, investors are looking for a safe place to put their money.

Traditionally, they would have turned to "safe haven assets" such as the Swiss franc, the Japanese yen, or gold, which are expected to hold or gain value even when the market is turbulent.

Some financial experts believe that investors are potentially looking to the cryptocurrency, Bitcoin, as a safe haven.

However, others warn that it has failed the safe haven test.

The Claim

Bitcoin has now joined the ranks of safe haven assets, according to some financial experts.

Chris Reinertsen, chief marketing officer of Rhythm Technologies, told Forbes that investors have been turning to the cryptocurrency as the US-China trade war continues to cause chaos.

He said: "The devaluation of China's yuan has just hit an 11-year low against the dollar. There is a flight of capital to safe haven assets across the board, which now includes Bitcoin.

"Throughout the last few years, we have been seeing the trend of Bitcoin increasingly becoming fundamentally correlated to more macro means as increased economic uncertainty in the world increases."

This view is backed by Kirill Bensonoff, CEO of OpenLTV. He argues that Bitcoin is becoming a safe haven asset similar to gold.

He explains to Forbes that the cryptocurrency has rallied, while there have been downturns in the market.

Bensonoff added: "I believe we are going to see more capital flight to Bitcoin in the near future."

The Counterclaim

However, Peter Schiff, CEO of Euro Pacific Capital, is sceptical that investors are using Bitcoin as a safe haven.

He tweeted that Bitcoin is trading back above $10,000 as trade tensions rise, but this does not affect its status as an asset.

Schiff said: "But don't believe the hype that this rise reflects safe haven buying, similar to gold.

"Bitcoin is not being bought by investors searching for safe havens, but by speculators betting that they are!"

The CEO previously said that the cryptocurrency had failed the safe haven test when it dropped by seven per cent in daily trading at the end of August (before rising again).

He explained that as global markets plunged, investors "sought refuge in monetary safe havens", such as the Japanese yen, the Swiss franc, and gold.

Schiff added: "Yet Bitcoin plunged by more than stocks!"

The Facts

One Bitcoin is currently worth £8,637.05 ($10,410.90) at the time of writing.

While the uncertainties around the US-China trade war has seen the value of Bitcoin increase, Brexit could have a similar impact. According to the Independent, market analysts predict that Bitcoin will reach record highs if there is a no-deal Brexit.

As Brexit causes chaos at home, Bitcoin has seen a six per cent rise against the US dollar - amounting to nearly 10 per cent gains against the pound.

There are around 17.9 million Bitcoins currently in circulation. There is, however, an upper limit - only 21 million Bitcoins will ever exist, so that means there are close to 3.1 million Bitcoins (14.7 per cent) that are not in circulation left.

It is predicted that 1,800 new Bitcoins are produced every day. They are produced through a process known as mining, where people solve complicated computer puzzles. A combination of specialised software and increasingly powerful hardware are used in this process - and if it is successful, the miners are awarded 12.5 Bitcoins.

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It is also estimated that 30 per cent of Bitcoins "may be lost forever as a result of things like hard drive crashes and misplaced private keys".

The cryptocurrency cuts out the 'middle man' through its decentralised system: there is no single institution that controls the network, there is no physical cash to be printed and controlled, and there are no interest fees.

This means that the cryptocurrency is "immune to the impact of geopolitical tensions or government interference", Reuters reports. Through the cap of 21 million Bitcoins, its scarcity gives it an innate value, like rare metals.


source: leeds-live.co.uk
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