How Crypto Markets Are Benefiting From Government Stimulus Aid – Historically, gold has served as the standard-bearer for safe-haven assets in the world’s financial markets. This makes perfect sense, especially when you consider the predictable nature of gold and the fact that it provides investors with a secure store of wealth.
However, investors may be somewhat surprised to note that Bitcoin is also emerging as a potential safe haven asset, with the price of the market-leading cryptocurrency and gold having reached a monthly correlation of 70% as recently as August.
This represents an all-time high, while as a principle it also explains why Bitcoin and the crypto markets could be poised to benefit from government stimulus aid and widespread quantitative easing measures.
Bitcoin – Is it Really a Viable Safe Haven?
The increased correlation between bitcoin and gold has become incredibly apparent throughout 2020, culminating in an all-time high of 70% back on August 12th.
This trend was reinforced by the asset’s respective price movements around this date, with Bitcoin falling by 3.9% to a low of $11,20 while gold slumped by 4.7% to a closing price of $1,932.
The latter decline represented gold’s biggest one-day crash in seven years, while this dual decline is indicative of a strong correlation between the two assets.
But does this mean that Bitcoin is a viable safe haven? The answer to this question is deceptively complex, particularly when you consider the innate volatility of bitcoin and its historically wild price movements (with 2017 offering a relevant case in point).
Conversely, the finite supply of Bitcoin helps to maintain a relatively competitive base value (similar to gold), and while this asset doesn’t necessarily provide the same secure source of wealth as the precious metal, it’s also largely impervious to many of the macroeconomic factors that impact on general market prices.
Bitcoin as a Safe Haven in Action – The US Stimulus Package
In practical terms, the increased appeal of bitcoin as a relatively safe haven has been borne out by the stimulus negotiations in the US.
An initial round of stimulus measures and personal cheques were issued in North America at the beginning of April, while talks about a further $2.2 trillion relief package were ongoing in the Senate.
However, President Donald Trump has exited talks until after the US election, creating significant levels of market volatility across a range of asset classes.
According to Edward Moya from Oanda, even Bitcoin was participating in the broader stock market selloff following Trump’s revelation, as risk aversion took hold and investors sought to abandon any major positions.
Despite this, Wall Street considers a future stimulus package to be inevitable in the US, especially with Joe Biden the strong favorite to win the US election in November. With this trend for introducing quantitative easing measures now prevalent across the globe, it’s clear that the demand for Bitcoin is set to rise as the economic outlook deteriorates.
The reason for this is simple; fiat currencies will become increasingly devalued and worthless as stimulus measures are rolled out, with central banks continuing to print money and slash base interest rates.
As a result, investors are turning to a finite asset class that isn’t centrally controlled, even if it is renowned for its incredible levels of volatility and unpredictable price movements.