The filing of Robert Mueller’s report regarding US President Donald Trump’s alleged Russian collusion without further indictment has sparked controversy. Regardless of one’s political views, the US is certainly in a state of turmoil, and divisions along party lines are becoming increasingly sharp.
Additionally, the economic news has not been rosy either. With the Dow Jones Industrial Average (DJI) dropping nearly 2 percent before the weekend, and dramatically negative banking news, many are predicting a dramatic economic correction.
With all the politically and economically charged chaos, the clarion call on crypto Twitter is an encouragement to hold Bitcoin. For example, Fundstrat founder Tom Lee recently responded to a tweet by CNBC’s Brian Kelly about the Mueller report by posting:
— Thomas Lee (@fundstrat) March 22, 2019
The basic argument deals with using Bitcoin as a hedge investment against negative news. Hedge investments are generally made in assets which are not affected by political or economic news, since their value is tangible, and not tied to entities like governments or companies. The most obvious example is gold.
Bitcoin’s offer as a hedge investment is important. The cryptocurrency represents an asset that is not linked to governments or companies and is controlled by market forces alone. As such, it can function as a hedge against negative news. Others have agreed, as well.
If (money printing)
If (corrupt government)
— Dan Held (@danheld) March 23, 2019
Believe the Hype?
Bitcoin, however, is not everyone’s savior. In fact, many in the investment world still believe the coin is all hype. For example, Tom Lee is notorious for over-hyped Bitcoin price predictions. He famously suggested that Bitcoin would reach $15,000 by the end of 2018 — the year of the worst ‘crypto winter’.
Even more, the actual stability of Bitcoin during negative news cycles has not really been tested long-term. Bitcoin was ‘born’ in 2009, immediately after the last dramatic economic collapse. That correction was driven in large part by losses in tangible real estate assets. When asset values decline for a prolonged period of time, hedged investments tend to rise in response, providing stability. Bitcoin’s ability to hedge during economic declines remains unknown.
Nevertheless, the fundamental principle underlying Bitcoin does have all the makings of a hedge investment. Because of its nature as a non-governmental currency, Bitcoin is liberated from politically motivated financial decisions, and with no link to centralized corporations, is not tied to the economic viability of any entity.
However, in spite of these positives, recent reports of wash trading and scandals involving hacking have spooked investors. BTC has had trouble keeping above the $4,000 level, in spite of the relative stability it has shown. This may well indicate that the fundamentals of Bitcoin have created a stable basis for the asset to grow, even against negative news cycles, proving Lee’s point.
Clearly, the future of Bitcoin is somewhat overcast with doubt. However, as the first and most stable cryptocurrency, and with fundamentals that mirror gold, its potential as a hedge investment is real. The only way to truly evaluate this principle, of course, is through adversity. If Bitcoin is to have a future, the next economic crisis will be its testing ground.
Negative news of any kind can move the market, the Mueller report notwithstanding, and Bitcoin’s price response will shed light on its future viability as a hedge investment.
Do you think Bitcoin can function as a true hedge against negative economic news, or is it all just hype? Let us know your thoughts in the comments below!