Complex Made Simple

Is the Bitcoin winter over and can it be the new Gold standard?

 In recent months Bitcoin (BTC) passed the $10,000 mark and has continuously been trading right around it. 

Considering that Bitcoin had been trading around $3,000 to $4,000 during last years’ crypto-winter, prices have recovered significantly. 

“Where we go from here? Some say Bitcoin will flatten to $0 while others say it could reach a price of $100,000 within the next two years. It’s impossible to make an exact prediction, but one thing is for sure: Bitcoin has now been around for ten years, it has seen its fair share of crises, and it has always sprung back to life. There is a need for a cryptocurrency like Bitcoin, as it provides value, and regulators and investors are realizing that,” Ahmed Jacob, Dubai-based Managing Partner and CTO of INVAO, told AMEinfo.

Bitcoin is the New Gold

Bitcoin is the new gold.  Gold was an early technology. Its amazing look and feel is as strong today as ever but its use case as the place to secure your net worth in times of trouble has been surpassed by bitcoin, Forbes argues. 

  Bitcoin gold 1 

Looking at how Gold and bitcoin react to the U.S./China trade war, we can see that BTC outperforms gold by a mile.

Bitcoin is replacing gold as the safe harbor asset and that is a role that is only going to grow and while there is only $200 billion or so of it, it must fly higher than $5 trillion gold and its entourage of paper proxies.

“Gold is a raw material, while Bitcoin is a new form of commodity that gives the user access to a global and decentralized payments network. Bitcoin has a set cap of 21 million. In the case of gold, we have no idea how much supply there is in the ground, which creates the risk of a gold rush as mining technology improves. Bitcoin has the chance to become a globally accepted means of payment one day, if volatility decreases. Once that happens, the market cap of Bitcoin will exceed gold by far,” according to Jacob.

Gold’s heydays are gone

We know this by studying the history of gold. The vast majority of returns gold has enjoyed in the modern era came in the 1970s. Consider the returns by decade:

  • 1970s: 1,365% 

  • 1980s: -22% 

  • 1990s: -28% 

  • 2000s: 281%

  • 2010s: 50%

Bitcoin is an “emerging store of value.” Each day, more investors gain greater confidence in bitcoin’s place in the world, it gets easier for institutional investors and financial advisors to buy, and Millennials prefer bitcoin to gold by a 9-to-1 ratio

Like gold in the 1970s, this has translated into volatile but strong returns.  

Bitcoin and crypto adoption in the region

Julien Hawari, CEO of InfakCorp, the first Islamic Fintech Ecosystem and also Advisor for Capital Crypto Bank, a Crypto Advisory Firm told AMEinfo: “The region is at its start. As of last September end there were less than 30 places in the GCC that accepted bitcoin. It gives you a good indication on the amount of work that needs still to take place. Will it happen? Of course it will. How fast? That is the main question. Government are working on their programmable currency and on blockchain programs that should take effect. Legislation is still not sorted in many countries.”

Bitcoin and other cryptos are key digital currency assets primed to join blockchain projects emerging in the region. Alexandre Hawari, CEO, Memob told AMEinfo: “The region is at early stage. The launch of Memob IEO is an important milestone as we are an existing company, with existing cash flow and customers and proven concept that is going to the next stage. Blockchain and crypto are key tools in this evolution. We will be at the center of a new regional ecosystem.”

Crypto as a hedge

The U.S.-China trade war, the Hong Kong protests, and now the attack on Saudi Arabian oil producer Aramco add more pressure to financial and commodity markets  

The value of stocks, bonds, and other asset classes is tied to factors such as GDP, earnings, and interest rates. But Bitcoin appears to be dancing to its own tune.  

recent study used a quantile-on-quantile regression approach to examine the relationship between the king of cryptocurrencies and oil. The study concluded that bitcoin serves as a hedge and a diversifier against oil price movements.

Therefore, these findings suggest that bitcoin appears to be an ideal hedge. 

Gabor Gurbacs, the director and digital asset strategist at VanEck, explained in a recent tweet that 27% of the bonds in the world offer investors a negative interest rate, which may elucidate the fact that a paradigm shift towards Bitcoin is needed.

“According to Deutsche Bank, 27% of bonds in the world trade at a negative interest rate with a total market value of ~$15 trillion or 75x #bitcoin’s market cap. It’s time for Plan ₿!”

Grayscale Investments, the cryptocurrency asset manager backed by Digital Currency Group, which acquired CoinDesk in 2016 – has released a report showing what it argues is bitcoin’s potential as a hedge against global liquidity crises.

“Instead of stashing large amounts of capital in one project or currency, it’s better to invest in a diversified portfolio of crypto assets. Also, a crypto-portfolio should be actively managed as crypto prices are highly volatile,” says Jacob of INVAO.

He adds: “Bitcoin is uncorrelated to other asset classes, meaning if market prices of other asset classes like stocks, bonds or real estate crash, Bitcoin prices won’t be affected. Moreover, compared to precious metals, which are a traditional crisis hedge, Bitcoin does no only offer downside protection, but also the chance to generate attractive returns. Hence, the answer is yes, Bitcoin is an excellent hedge against a recession.”

Store of Value

Many crypto investors argue that BTC will be the ultimate store of value. For example, amid the Venezuela Crisis, there are rumours that some Venezuelans bought BTC to escape from hyperinflation of their currency

Lingering political unrest rendered millions of Lebanese nationals unable to access their own money deposited with banks for the 10th consecutive day, with no end in sight, highlighting once again how Bitcoin can serve as an alternative financial system.

Iranians feeling the squeeze from U.S. economic sanctions are increasingly turning to Bitcoin to make money.

This comes at a time when Iran’s currency, the rial, tumbled from 32,000 rials to $1 at the time of the 2015 nuclear deal, to around 120,000 rials to $1 now, making Bitcoin a sensible alternative as a store of value.

Boost to Bitcoin- Libra

Facebook’s Stable Coin Libra is to Boost Bitcoin Sky-High, despite the recent regulatory battle in the US which is delaying the crypto’s launch. 

According to a recent tweet from Jeremy Allaire, the chief executive of Circle, the launch of Libra (whitepaper) will be a “massive inflection point in [the] global adoption of cryptocurrency.”  

Libra has a multi-pronged play here and is a first-mover in how the token economy could work. Analysts say that could legitimize the space (and Bitcoin), make it easier to buy other crypto assets.

Libra could be a significant catalyst for Bitcoin’s price in 2020.

“The Libra debate has resulted in increased media attention for cryptocurrencies and blockchain technology. The fact that an established technology company like Facebook enters the crypto-space is also giving the industry greater legitimacy. These indirect effects on the overall crypto-market will also affect the price of Bitcoin,” says Jacob.