Bitcoin Skyrockets As Volatility In Global Market Increases

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It looks like Bitcoin is going to end the year with a massive bang as currencies from different parts of the world depreciate, making people turn into bitcoin as their haven.

It was reported earlier that as Chinese’ yuan and Venezuelan Bolivar continue to lose their value in the global market, people are leaning towards bitcoin which serves as their protection.

In the case of U.S., the election continues to affect the value of U.S. dollars in the global market more now that the election is fast approaching.

It’s happening again. Bitcoin has locked step with gold and taken to the skies as uncertainty about the U.S. election increases volatility in global markets. It is, in short, acting as a haven.

The last time this happened was in the run-up to the U.K. referendum on European Union membership. Then, my colleague, Tim Culpan, and I argued that digital currencies can’t be taken home and stored in a vault.


Deja Vu
Bitcoin tends to dance to its own tune, but when volatility rises, it’s been in lockstep with gold

Source: Bloomberg
Note: The two have been indexed to allow for easier comparison.

It’s still a good reason not to use Bitcoin as a hedge against the expected market sell-off an electoral victory by Donald Trump would entail.

There are other reasons, too.

For one, Bitcoin is quickly becoming a thing of the past.

As Bloomberg View’s Elaine Ou pointed out this week, some of the newest cryptocurrencies such as Zcash and Monero have gained popularity fast because unlike Bitcoin they offer the ability to keep transactions confidential.

Then there’s the threat of proper central bank-backed digital currencies, which are expected to come into existence soon and may take much of the sheen off Bitcoin.

Central banks looking at virtual versions of their fiat include Canada, Australia, China and England. On a side note, part of the reason why central banks have suddenly become more interested in the subject is because they’ve realized they can track transactions, something not afforded by paper money.

Aside from facing obsolescence and the threat of competing with actual currencies, the volatility of Bitcoin has to be off-putting for serious investors. During any given period, the digital currency swings three to five times more violently than gold, hardly the behavior expected from a haven asset.

If all that weren’t enough reason to look elsewhere for an investment to fall back on in the event of a market sell-off, the performance of Bitcoin after Brexit should be. In the two weeks that ensued the vote, gold rallied 8.2 percent while Bitcoin moved a measly 1.3 percent higher.

Investors, however, aren’t always rational. For now, it seems like many have nominated Bitcoin as their exit plan if the October surprise dealt by FBI Director James Comey turns into a November market shock.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.


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