It has been an eventful summer in the Northern hemisphere. Shootings in the USA, unrest in China/HK, flare-up in South Asia, burning Arctic Siberian forests, collapsing Greenland glaciers;
We have been doing some reading on the ‘butterfly effect’ and its effect on the markets. Essentially, the butterfly effects implies that small events in one part of the world can sometimes have far-reaching consequences in another part, often very far away; literally a butterfly flapping its wings in New Mexico could potentially cause a tornado in China, as per the original version propounded by Edward Lorentz.
The US-China political standoff is causing turmoil in global markets as indices all over the world are trending downwards this week. The S&P 500 had the worst single day YTD two days ago when the market opened 300 points below the previous close. Increasing macro uncertainty dominated by US-China trade wars and Brexit could be the overarching theme in traditional markets in the short-term and with ultra-low yields for treasuries, Bitcoin’s purported use case as a safe haven asset class, the ‘Gold 2.0’ thesis, is slowly coming to fruition. On both Monday and today when the US equity markets opened weakly, BTC price has jumped upwards by more than $500 on both occasions.
Further supporting BTC’s rising prominence as a safe haven asset class is the increase in correlation between the price of bitcoin and that of gold in the past few months. The correlation between Bitcoin and gold over the past year is 0.496. In the past three months, that has slowly shot up to 0.827.
We wouldn’t be surprised if more and more institutions start allocating to Bitcoin over the next few quarters, especially as regulatory clarity emerges. The crypto winter is well and truly in our rear view mirror now, as we head into the last third of 2019.
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