What’s behind Bitcoin’s price spike? Brexit? China? Something else?
Anyoption analyst Elise Blanford takes an interesting look at what is happening right now in the cryptocurrency market, as Bitcoin is leading a charge upward in prices. For more of Elise’s research see the
While Bitcoin has had a particularly tumultuous year, the recent surge higher in prices comes amid numerous factors contributing to uncertainty across the globe.
With major monetary policy decisions waiting in the wings, investors have been parking more money in alternative financial assets as a means to hedge against the uncertainty in the lead up to the Brexit referendum and upcoming FOMC meeting.
However, one of the main drivers behind the substantial momentum higher in prices remains the exodus of cash from the Chinese mainland with digital currencies one of the few remaining mechanisms for circumventing capital controls. Further weakening of the Yuan might quicken the pace, sending Bitcoin prices surging as they increasingly become a proxy for funds trying to escape the mainland.
Lastly, plans to reduce mining and supply might see Bitcoin prices push higher as scarcity adds to potential upside.
The China Effect
Owing to its relatively decentralized nature, Bitcoin has seen its popularity once again find traction amongst investors looking for uncorrelated market returns in an effort to hedge against the rising tide of uncertainty encircling the global economy. When it comes to bypassing capital controls implemented by Chinese policymakers, Bitcoin is a highly effective tool for converting and moving funds anywhere across the globe within a matter of minutes before converting back to a paper currency of the user’s choice.
For those with wealth on the mainland that are trying to find creative ways to exceed the limits imposed on outflows, Bitcoin has become the tool of choice. If policymakers continue to weaken the Yuan, which is trending new 5-year lows in response to a rising US dollar, this could see the pace of outflows accelerate dramatically over the coming months.
Brexit and the Fed
Two events that have been widely viewed as a predominant upcoming financial market risks are the FOMC Decision due on Wednesday and the UK’s EU referendum vote to be held later in the month. While not directly impacting the digital currency environment, the added layer of uncertainty has contributed to ongoing risk aversion as evidenced by the recent rise in gold prices. Heavily reduced expectations of an imminent interest rate hike combined with weak labor data are giving poor visibility on the timeline for any tightening What’s behind Bitcoin’s price spike? Brexit? China? Something else?.