Bitcoin Can Be a Hedge During Persistent Liquidity Crises: Grayscale

By CCN Markets: Global financial crises are on the rise, thrusting bitcoin into the spotlight. Legendary investor Warren Buffett called bitcoin “rat poison squared,” but it turned out to be nectar, nevertheless.

The world’s largest cryptocurrency’s valuation jumped approximately 47 percent between May 5 and May 31 to close the month nearly $8,500. The same period witnessed the U.S. market’s benchmark indicator, the S&P 500, drop by approximately 6 percent.

The bitcoin price was on a tear in May. | Source: TradingView

Analysts called the bitcoin price surge a net effect of the U.S.-China trade war and Chinese yuan devaluation. They now believe that the cryptocurrency became either a hedge or a tool to smuggle capital outside China.

Grayscale Investments, an asset management company, attempted to connect the same dots in its latest report.

Bitcoin Against the Economic Crisis

Grayscale’s research found that the bitcoin market benefitted the most whenever the mainstream financial industry faced economic epidemics. For instance, during the Brexit fears between June 2016 and December 2016, the bitcoin price impressed with 7.1 percent gains. The same period saw the euro slipping 2.4 percent and the pound by 8.1 percent. At the same time, the MSCI World Price Index dropped by 4.9 percent.

Brexit, bitcoin, greyscale

Brexit fears shook sentiment across global markets except for bitcoin. | Source: Grayscale Investments

Similarly, in the period between August 2015 and December 2016, wherein economic concerns in China were scaring off regional investors, the bitcoin price noted a 53.6 percent appreciation. At the same time, the Chinese yuan dropped by 5.7 percent and the Emerging Markets Price Index plunged by 22 percent. Grayscale wrote:

“While it is still very early in Bitcoin’s life cycle as an investable asset, we have identified evidence supporting the notion that it can serve as a hedge in a global liquidity crisis, particularly those that result in subsequent currency…

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