- According to experts, crypto hedge fund industry is expected to grow with Bitcoin.
- Some experts predict that Bitcoin will emerge on top as a hedge against regular markets.
- However, can Bitcoin really be used as a safe heaven?
Safe haven or not, Bitcoin, until recently, was rarely thought of as a safe haven.
Safe haven investments are typically physical assets like bonds or gold whose value is not tied to the dollar or other global currencies. Ask any investment expert and they will tell you that nonphysical assets such as Bitcoin stocks or equity are not typically categorized as hedges.
However, the world of investment is changing fast. In the wake of global economic uncertainty not to mention the current pandemic, nonphysical assets like Bitcoin are proving otherwise. Even though cryptocurrencies like Bitcoin have detractors like Warren Buffet calling it “rat poison” institutions continue to pay attention as new investment products (Bitcoin futures and options) emerge.
According to Henri Arslanian, PWC’s global crypto leader, “the crypto hedge fund industry” is expected to grow “significantly over the coming years as investing in a crypto fund may be the easiest and most familiar entry point for many institutional investors” looking to invest in crypto.
Is Bitcoin really a safe haven?
By design Bitcoin’s decentralized structure keeps it free and independent from central authorities. As the leading cryptocurrency, Bitcoin controls the lion’s share of the cryptocurrency market yet it is governed by contracting individuals who operate the network under a codified set of laws.
Unlike regular markets that are controlled by an appointed council of technocrats, Bitcoin takes an egalitarian approach with computing power as the only barrier of entry into its economic system.
Most importantly, distributed governance systems like that of Bitcoin and other cryptocurrencies prove that trust and economic value can be created without a centralized authority.
Furthermore, emerging iterations of blockchain technology have proven that cryptocurrencies can be used to support a diversity of ideas not to mention support for dissenting opinions without the censorship of a central governing authority.
The detachment of cryptocurrencies like Bitcoin from centralized governments makes them suitable for use as a hedge against depreciating assets in the regular market.
Weak dollar is good for Bitcoin
In the past, the US dollar in combination with precious metals like gold and silver have been used as a hedge against destabilized governments. As a government’s currency gets debased investors have been known to jump on commodities such as the US dollar that have global value. However, with the advent of the coronavirus pandemic that narrative is changing.
With the US government announcing its move to pump trillions into its economy as an economic stimulus package in the wake of the coronavirus pandemic, expert investors like Robert Kiyosaki recommend investing in assets such as Bitcoin, gold or silver.
In a tweet, the author of the bestselling personal finance book ‘Rich Dad Poor Dad’, mentioned that Bitcoin would emerge as the “best investment” after the coronavirus pandemic considering the US government’s move to “printing $10 trillion in FAKE US dollars to save the US”.
Typically, Bitcoin halving events have always been a precursor to a bull run in the cryptocurrency market. Bitcoin halving is an event built into bitcoin’s underlying technology that cuts the reward miners receive by half roughly after every four years. In the past, this deflationary measure in the Bitcoin system has signaled the beginning of dramatic bull runs as was the case in late 2017.
Even though the Bitcoin halving this time coincides with a global pandemic, market watchers are still optimistic that Bitcoin will emerge a winner as its supply is cut in half. In the view of most bitcoin bulls, the price of the premier cryptocurrency should go up as long as demand remains steady.
As a result of the current pandemic, the stock market has experienced one of the most severe crashes in history.
Even though there is a re-bounce in the markets, at one point, oil markets dropped by 24% and the Dow plummeted 2,013 points making up its single largest drop in a day. In view of these events, not to mention the ongoing economic stimulation going on across different jurisdictions worldwide, economists now refer to Bitcoin as ‘digital gold’.
Granted, there is skepticism around the “Bitcoin as a hedge” narrative, however, even with volatility and the technical challenges of using Bitcoin as a currency, investment instruments like Bitcoin futures present alternative ways of investing without necessarily owning Bitcoin.