Is Bitcoin A Safe Haven? Ask China And Argentina

Nevermind the double-digit price swings. Despite the day-to-day roller coaster ride of crypto markets, spiking demand in China and Argentina point to a pivot point for the largest digital currency – from risky bet to safe store of value.

According to Hong Kong-based Babel Finance, Chinese demand for bitcoin has surged 50 percent in the past ten days. Analysts point to the decision by the People’s Bank to let the Yuan fall below $0.14 last week.  The currency in the world’s second-largest economy has now depreciated to levels not seen since the global financial crisis.

Meanwhile, data from Localbitcoins.com show bitcoin selling at a 10 percent premium to global prices in Argentina. The price in Hong Kong, where mainland Chinese demand plays a strong role in price formation, was four percent higher than the rest of the world during the week.

Rayne Steinberg of investment management firm Arca argued that:

“Bitcoin is becoming the asset of last resort in areas of extreme currency devaluation and political uncertainty. In the last week alone, Bitcoin is up approximately 50% against the Argentine peso and trading at a significant premium on local exchanges. And they are not alone, joining the ranks of Venezuela, Hong Kong and Turkey who have also experienced similar shocks.”- Rayne Steinberg, CEO of L.A.-based Arca Investments

On the surface, claiming that bitcoin can hedge against uncertainty seems to run contrary to the inherent risks of cryptocurrencies. Traditional safe-haven assets never record daily price swings of the magnitude to which cryptocurrency traders are accustomed.

But a recent Grayscale Investments report supports the idea that digital currencies outside the reach of government control are increasingly becoming a risk-off investment. They note that since President Trump announced a rise in tariffs on Chinese imports in May, bitcoin’s cumulative return through August 7 was 104.8%.

Well-known crypto advocate Anthony Pompliano echoed that sentiment. The CEO of Morgan Creek Digital Assets recently told CNBC on August 6 that it makes sense for people to invest in an asset that “cannot be manipulated by a single country or politician.”

“[W]e’re now entering a position where it’s actually irresponsible for institutions to not have exposure to this asset,” he added.

Pompliano pointed to historical spikes in demand for bitcoin in Venezuela, Iran, and Argentina, when political or economic upheaval drove investors to digital assets. While conceding that “they’re small countries,” the Morgan Creek head noted the same patterns appeared to be arising in China.

As a crypto investment fund, Morgan Creek clearly has a dog in the race. But they also have a direct interest in establishing themselves as trustworthy managers of other peoples’ money. Measuring correlations and identifying bullish flags is more than just cheerleading; as Pompliano said, “it’s just math.”

It is also politics, economics, and sentiment that can separate a safe-haven from a risky gamble. If the IMF is correct when it says “the latest [trade] escalation could significantly… jeopardize the projected recovery in global growth in 2019,” going long bitcoin could well prove to be the lesser risk.

Intraday volatility is a feature of crypto because virtual assets are new and thinly traded, not because they are inherently volatile. While those price swings are unlikely to disappear anytime soon, it  also makes a lot of sense to be on the same side of Chinese capital flows. When the renminbi is buying bitcoin, it could well be a good bet to make.

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