Leading cryptocurrency Bitcoin enjoyed a surprising rally in recent weeks, climbing by more than 14% in August as of this writing alongside traditional investment haven gold. Investors have favored the digital coin as they seek safety from broader stock market turbulence. Experts say that investors are looking for shelter in digital assets because cryptocurrencies are easily accessed by traders all across the globe and because they remain free from government meddling and interference, according to a recent in-depth report by Bloomberg. Still, though, Bitcoin is not a guarantee: investors may be in for a shock if the volatile cryptocurrency retracts quickly, as it has done in recent months.
Investors Seek Safer Opportunities As Trade Tensions Rise Again
With fresh tariff threats and Chinese currency news roiling global markets, investors have moved toward securities perceived as safer, such as sovereign bonds. Bitcoin has also been one of these haven assets, albeit a somewhat surprising one. Brad Bechtel, head of foreign exchange at Jefferies, explains that Bitcoin “appears to be acting somewhat like a safe haven” which rises in times of market turbulence, says Bloomberg, adding that “when markets are calm and rallying, then Bitcoin sort of falls by the wayside.” Bitcoin has proven to be insulated against political turmoil and resultant market troubles because of its centralized structure. A report by Barron’s adds that Bitcoin’s recent gains may also be attributable in part to the Fed’s move toward a dovish monetary policy.
The Tide Could Shift
Though Bitcoin has posted big gains in recent weeks, particularly after languishing at around $4,000 for several months earlier in the year, investors should be cautious about developing crypto fever akin to the mentality which pushed digital token prices sky-high in 2017. Dave Balter, CEO of Flipside Crypto Inc., suggests that Bitcoin’s performance remains highly volatile and poorly understood relative to traditional asset types, according to Bloomberg. Balter notes that investors who rush into Bitcoin because they see it has a safe space may “wake up one day and see it drop 20%,” just as they may see it climb by an equivalent amount. As a case in point, Bitcoin dropped by just under 5% from a local high point around 6:00 a.m. UTC yesterday morning to just after market close in the afternoon. At the same time, the GTI VERA Convergence Divergence Indicator, a key Bitcoin indicator, flashed a new buy signal today for the first time since June, according to Yahoo Finance. This suggests that more gains could be on the way; volatility seems to remain the only constant.
What Comes Next
Bitcoin’s value may depend to some extent on the ongoing trade negotiations between the U.S. and China. Bloomberg cites Mark Chandler, chief market strategist for Bannockburn Global Forex, who suggests that a relaxation of those geopolitical tensions could “take the wind out of cybersecurity sails once again.”