LONDON: Bitcoin’s recent gains as stocks plummeted on US-China trade tensions reflect not so much its safe-haven credentials but its potential for quick gains, cryptocurrency and foreign exchange traders said on Tuesday.
The biggest coin jumped over seven per cent on Monday as US stocks slumped 3pc. Safe haven assets from the Japanese yen to gold to government bonds – expected to hold or gain value amid turbulent markets – also rallied as investors fretted over the impact of the trade war on the world economy.
Crypto enthusiasts said the moves heralded bitcoin’s achieving its potential as a haven. Bitcoin, their argument goes, is immune to the impact of geopolitical tensions or government interference because of its decentralised nature.
Unlike government-issued fiat money, the cryptocurrency is produced by miners across the world racing to solve computer puzzles. Its supply is also capped at 21 million, a scarcity aficionados say gives it an innate value, like rare metals.
And the correlation between falling stocks and rising bitcoin does appear to hold.
After major market-moving events over the last year, including US President Donald Trump’s threat last week to slap more Chinese imports with tariffs, bitcoin has jumped as stocks tumbled.
Since Trump’s threat on Thursday, bitcoin has soared 23pc versus a 4.6pc slump in the S&P 500. A week after the US president tweeted in May that he would raise tariffs, bitcoin rose 41pc against a 3.8pc fall in US stocks.
And when worries on a hawkish US Federal Reserve amid escalating trade tensions and weakening future corporate earnings growth upset markets in December, bitcoin added 18pc against a 10pc drop for stocks in a week.
In times of market fluctuations, investors tend to move small proportions of their portfolios to bitcoin, said Marcus Swanepoel, CEO of London-based cryptocurrency platform Luno.
But driving bitcoin’s moves is less its safe haven characteristics than its potential for outsize gains, he added.
“If you’re wrong, you’re not losing lots of money, but if you’re right we are talking outsized returns,” said Swanepoel.
Like gold, bitcoin has also tended to move in concert with market volatility.
But any correlation with the behaviour of traditional safe havens is likely more a short-term trend that an indication of anything longer-term, according to Forex.com analyst Fawad Razaqzada.
