Crouching Bitcoin, Hidden Alt Season: BTC Demand Has Fundamental Drivers

Bitcoin’s 2019 surge has led to some pundits scaremongering again, telling the crypto community that it is entering another bull trap. Bitcoin demand does, however, have some fundamental drivers fueling it. Among those are American and Chinese trade tension refugees and institutional investors.

BoA: Recession Fears Fueling Crypto Speculation

A recent Bank of America report suggests that many Americans may be turning to bitcoin due to fears trade tensions between the U.S. and China may spill over into a full-blown trade war and a resultant recession. According to a Business Insider report, Bank of America Merrill Lynch Chief Investment Officer Michael Hartnett regards the surging bitcoin price as a symptom of Americans fearing a looming recession.

Hartnett does not consider the rising demand for bitcoin a definitive flight to a safe haven asset, but a speculative gamble in a highly volatile market. He views the growing demand for bitcoin as representing investors seeking higher returns in a low-interest rate environment, with the added bonus of being shielded from many of the risks of a potential recession in the U.S.

The bank has never been a champion of cryptocurrencies, having infamously banned customers from using credit cards to interact with crypto exchanges. Only last year, the behemoth, in a filing with the SEC, warned:

The widespread adoption of new technologies, including internet services, cryptocurrencies and payment systems, could require substantial expenditures to modify or adapt our existing products and services.Bank of America

Bank of America Corporation, Annual Report for the Fiscal Year Ending December 2017

Trade War Refugees From China

Other analysts see Sino-U.S. trade tensions as being behind a resurgent Chinese appetite for bitcoin. Chinese demand growth has historically been associated with bitcoin price surges, and DigitalX CEO Leigh Travers thinks the same effect is occurring again.

“Chinese and expatriate Chinese around the world are contributing to the recent rise in the price of Bitcoin. They are seeing Bitcoin as a hedge against the falling Yuan.” 

China’s relationship with cryptocurrencies is almost as complex as the one between its government and citizens. Given the ban on crypto in the country, it is impossible to measure the level of Chinese buying. But the Chinese have become savvy entrepreneurs despite – and perhaps because of – the long and coercive arm of the CCP.

It is reasonable to suspect that the Chinese adoration for crypto has only intensified in the wake of a clampdown on formal capital flight from the country. That would only escalate in light of increasing trade tensions between the economic superpowers, which, if ignited, would harm China’s already slowing domestic economy.

The Demand Will Not Flow Over To Altcoins

Mike Novogratz recently warned altcoin hodlers not to expect demand for crypto to breach bitcoin and spread elsewhere. In a tweet today, the famed bitcoin bull suggested:

  

Not this time. Market getting smarter. $btc will outperform.

— Michael Novogratz (@novogratz) May 19, 2019

 

Grayscale’s Q1 2019 Investment Report would appear to support Novogratz’s assertion. The company revealed a 42 percent increase in capital inflows for the quarter. It also reported that 99 percent of those inflows were to its Grayscale Bitcoin Trust product.

Other analyses, however, have illustrated that in the immediate aftermath of a surge in the price of bitcoins, altcoins often perform well – at least, in the short-term.

With the world braced for a Sino-U.S. showdown, it appears institutional and mom-and-pop investor appetite for bitcoin has risen. Whether that renewed appetite indicates a risk-on mood or a defensive safe haven play remains to be seen.

There are sound arguments for both.

Either way, bitcoin’s use case as digital gold is proving irresistible in an interconnected global financial system increasingly susceptible to trade and other economic shocks.

 

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