Despite 2018’s harrowing performance, Bitcoin and its ilk are outperforming all other asset classes in the public market. While some have pinned this trend to market cycles, data is showing that at least some of Bitcoin’s rally has been aided by investors using it as a safe haven.
Data from eToro, the Tel Aviv-based investment platform, shows that developments in the trade spat between the U.S. and China are resulting in increased demand for Bitcoin — and gold too. Interesting, right?
Bitcoin Demand Rises With Gold
Over the past few months, a fresh trade war has been waged between the U.S. and China. President Trump has asserted that the Chinese are taking advantage of America, accusing the nation of stealing intellectual property and taking advantage of U.S. consumers and firms.
According to data from eToro, which offers trading vehicles for both Bitcoin and gold, retail investors are opening more and more positions in the precious metal and cryptocurrency in a seeming response to events in the raging spat. While the chart below doesn’t show that all too well, Simon Peters, an eToro analyst based in the U.K., told the London Economic that there has been an uptick in Bitcoin and gold investors/open interest since the start of the trade war:
“As the US/China trade war has escalated and more announcements of tariffs from both countries are made, we are seeing a greater number of positions being opened in both bitcoin and gold on eToro by retail investors.”
According to Peters, it should be no surprise that the demand for the two assets has been rising in sync. He writes that the two assets inherently share many characteristics, citing Bitcoin’s supply cap of 21 million coins, decentralized qualities, non-sovereign nature, and deflationary model. The eToro analyst added:
“Of course, considering bitcoin as a safe-haven asset might not be an easy thing to do. Extreme price volatility, hacks and allegations of price manipulation still weigh on its reputation, however the correlation with gold on eToro’s platform could be a sign that the overall perception of bitcoin is gradually shifting from speculative towards a lower-risk store of value.”
Not Digital Gold?
While the digital gold narrative does have a fair bit of wind in its sails, there remain detractors. One of these detractors is Peter Schiff, a prominent libertarian-leaning investor famous for touting a $5,000 gold prediction. Over recent weeks, the cryptocurrency skeptic — who believes that Bitcoin is a game of “greater fools” and that digital assets have no inherent value — has asserted that Bitcoin is no match for gold. In a recent tweet, Schiff wrote:
“Bitcoin has again failed the safe haven test. On Friday, as escalating trade tensions sent global stock markets plunging, investors sought refuge in monetary safe havens. The Japanese yen, Swiss franc, and especially gold all moved higher. Yet Bitcoin plunged by more than stocks!”
Even Thomas Lee of Fundstrat Global Advisors, one of the most staunch Bitcoin bulls, agreed with Schiff, arguing that he “can’t argue” with the gold bug’s noticing.
While this could just be an untimely coincidence, it is important to note that a similar trend occurred back in December 2018, when stocks shed 20% and Bitcoin collapsed from $6,000 to $3,150.
During the crash seen late last year, the chief executive of pro-innovation ARK Invest, Cathie Wood, suggested that during global scares, “people sell their most experimental assets, such as bitcoin and other cryptoassets” (quote from Chris Burniske, who paraphrased Wood).
Really, this doesn’t imply that Bitcoin has failed as a store of value or a safe haven, it may just show that it has yet to reach its full safe haven potential. But to really convince investors, Bitcoin will need to prove itself in the next recession by vastly outperforming equities.