The recent appreciation in Bitcoin price has been attributed to the steadily increasing demand for the digital currency among investors from different parts of the world. One of the main reasons for the increasing Bitcoin prices is said to be falling value of Chinese Yuan. The uncertainty revolving around the upcoming US presidential elections is yet another factor fueling the demand for Bitcoin.
With the gap between US presidential candidates, Donald Trump and Hillary Clinton closing in, the global financial market is in jitters. Most of the investors who were rooting for Hillary Clinton are now rethinking their investment strategies, leading to renewed interest in stable assets like Gold, Swiss Francs, and even Bitcoin.
The direct co-relation between and gold and Bitcoin prices in connection with market volatility is now a well-known fact. In times of market distress, both the assets are known to follow similar trends. In spite of Bitcoin proving itself to be one of the reliable alternatives to conventional financial assets, there are plenty of apprehensions about the asset, fueled by the media.
One of the mainstream media outlets recently published an article asserting why it is not a good idea to use Bitcoin as a hedge against the expected market sell-off. Except for the risks presented by volatile nature of Bitcoin, the reasons offered by the publication are not justifiable. Some of those reasons include:
a. The losing relevance of Bitcoin in the current cryptocurrency ecosystem – The author believes that the popular digital currency is soon going to be replaced by Monero and ZCash. While it is true that these two cryptocurrencies have recently gained some traction in the recent days, it has been short-lived. In term of adoption, these cryptocurrencies still have a long way to go before they can match Bitcoin
b. The threat of central bank backed digital currencies — It is the decentralized nature of Bitcoin which makes it special. The digital currencies backed by central banks will be nothing more than the regular fiat currency. Also, when it comes to tracking transactions, the financial institutions are law enforcement agencies already have means to track transactions on Bitcoin blockchain. This very fact will also make Bitcoin more acceptable (governments, law enforcement agencies) than Monero or ZCash, which are anonymous.
c. Volatility — It is accepted that Bitcoin is a volatile cryptocurrency, but recent price trends show that Bitcoin has turned relatively much stable compared to few other assets out here. However, it is just a small risk as mentioned earlier.
Going by the current trend, the digital currency is expected to cross $800 soon.
Ref: Bloomberg Gadfly |Image: Shutterstock