Bitcoin A Safe Haven Asset?

A recent resurgence in Bitcoin has coincided with rallies in the Japanese yen, Swiss franc, and gold against a backdrop of Federal Reserve dovishness.

Patrick Tan
Jul 30, 2019 · 6 min read
“Take me out to the ball game, take me out to the park.” (Image by Tom Glod from Pixabay)

But when it comes to his favorite baseball team the Boston Red Sox, Whitener’s predisposition towards clinical cynicism and skepticism go out the window.

“I guess you could say it happened fifteen years ago.”

Whitener, a diehard and lifelong Red Sox fan was in the stands at the 2004 American League Championship Series at Fenway Park on a typically frigid Bostonian autumn day.

Yet despite the cold weather, Whitener was eating a hot fudge sundae, the only problem was he couldn’t remember where he had put the spoon for the sundae.

Not willing to miss a minute of the game, he proceeded to eat the sundae like an ice cream cone, dribbling hot fudge and vanilla ice cream on his strawberry-colored beard (a delicious-sounding combination if there ever was one) and all over his shirt — when he noticed the plastic spoon in his shirt pocket — by which time most of his sundae was anywhere but the cup.

That day, the Red Sox would beat their arch rivals the New York Yankees 6–4 in a lengthy 12-innings to hit off another four games in what to date has been the greatest comeback (yet to be repeated) in Major League Baseball history, coming back from 3–0 to beat the Yankees 4–3 in 7 games and to clinch the 2004 American League Championship Series.

The Boston Red Sox would go on to win the World Series in St. Louis that same year, ending an 86-year drought.

Ever since that October day, Whitener has always eaten a hot fudge sundae from McDonald’s at every Red Sox game he attends and he always remembers to place a plastic spoon in his shirt pocket, only not to use it.

“I know it sounds crazy and I know it doesn’t do anything to help the Sox win, but I think to myself, if I don’t do it and they lose, am I responsible?”

“And if I do it, but the Sox lose anyway, at least I know I’ve done my part.”

Whitener is well aware of the irony.

As an engineer, Whitener is no stranger to the adage that “correlation does not imply causation.”

Just because he happened to be eating a hot fudge sundae at one of the most dramatic games in MLB history is more coincidence than anything else.

What’s Causing Bitcoin to Rise?

Since the beginning of June, prices for the bellwether cryptocurrency have risen by more than half — a resurgence that followed a year of lackluster trading that most cryptocurrency traders would rather put behind them.

And while Bitcoin’s recent rally is a pale imitation of the cryptocurrency’s surge in 2017, it still bears all the hallmarks of volatility, so intrinsic in the nascent digital asset, with the price of Bitcoin collapsing by some 10 percent in a matter of minutes on June 26, 2019, with no obvious reason.

#notmybitcoin (Image by Gerd Altmann from Pixabay)

There are some who take the view that the recent run-up in Bitcoin prices is in part, due to the vote of confidence in digital currencies by Facebook’s foray into the space with the launch of Libra — but Libra and Bitcoin are chalk and cheese, with both representing diametrically opposite views on the future of money.

According to that view, this is simply a numbers game, with greater public participation delivering higher Bitcoin prices.

Perhaps, but there has also been consistent and growing institutional interest in Bitcoin, as well as other cryptocurrencies and prices, may simply be reflecting greater participation from that quarter as well.

Given the opacity of the Bitcoin trade, it’s simply not possible to conclude with any degree of certainty cause and effect purely from that perspective alone.

Safe Haven?

Then there’s another view which suggests that Bitcoin has entered the class of “safe haven” assets that are typically favored when the value of the dollar is threatened.

These assets typically include the Japanese yen, the Swiss franc and Bitcoin’s physical cousin — gold.

Speaking to the Financial Times, David Mercer, CEO of London-based LMAX Exchange, a cryptocurrency trading facility, offers,

“Bitcoin is digital gold — it’s a genuine alternative to traditional safe havens.”

Other Bitcoin maximalists also argue that there are macroeconomic forces at play, in particular from the shift among major central banks towards cutting interest rates.

Federal Reserve Chairman and man showing off his jazz hands, Jerome Powell. (Screengrab from C-SPAN)

Last month the U.S. Federal Reserve confirmed that rate cuts are on the cards, given the slowing economy and the specter of the trade war and geopolitical tensions.

The European Central Bank has also thrown its hat in the ring to stress that it will launch another round of easing measures if economic conditions and inflation failed to pick up.

Against this backdrop, government bond yields have collapsed, with a whopping US$13 trillion of government debt across the globe trading with negative yield — you’re actually losing money by holding on to government debt.

Which is why some have suggested that cryptocurrencies are merely entering the fray as another asset in an ever-diminishing pool of assets which are the financial equivalent of a lottery ticket.

Perhaps.

But again, correlation does not imply causation.

There are simply too many unknown unknowns and unknowable unknowns to explain the continued interest and activity in cryptocurrencies or to unequivocally offer a convincing explanation as to why Bitcoin chose 2019 to rise again.

From improved institutional measures and controls, greater regulatory certainty to better awareness, geopolitical tensions as well as the riots in Hong Kong, there is no shortage of potential reasons to explain why Bitcoin and other cryptocurrencies have chosen 2019 to bounce off their lows.

Maybe they all contributed to Bitcoin’s rise or maybe none of them did.

As I have suggested repeatedly, given that Bitcoin is an unconstrained asset, it’s price movements, for now, are more reflective of manipulation than market demand or macroeconomic forces.

The opacity with which Bitcoin trades — the vast majority of transactions take place away from exchanges in the well-appointed offices of private wealth — the difficulty with which to ascertain accurate Bitcoin price data, and the flood of fake volume means that we will never know for sure what is causing a movement in Bitcoin.

Perhaps it’s not any one reason, perhaps it is every available reason that has caused 2019 to be Bitcoin’s comeback year — but to accept that argument would also mean to accept that Whitener’s sundae-eating habit contributed to the Red Sox win over the Yankees in 200 4— and that I would argue, is a lick too far.

The Capital

A publishing platform for professionals now available on https://thecapital.io

Patrick Tan

Written by

CEO of Novum Alpha, an all-weather digital asset trading firm that uses Deep Learning tools to deliver dollar-returns in all market conditions.

The Capital

A publishing platform for professionals in business, finance, and tech

Patrick Tan

Written by

CEO of Novum Alpha, an all-weather digital asset trading firm that uses Deep Learning tools to deliver dollar-returns in all market conditions.

The Capital

A publishing platform for professionals in business, finance, and tech

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