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Central Banks Are Part of the Reason for Bitcoin’s Rise

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August 21, 2019 | 

671 Views | 

Darryn Pollock | 

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The Financial Times' chief correspondent for international finance, Henry Sender, has said that central banks, despite being very cautious of cryptocurrencies, are one of the biggest reasons for the price rise in Bitcoin. Central banks have a big role to play in how the economy fairs around the world, and at the moment, they are feeling the strain. 

Because of recent events across the globe, and at some of the world’s biggest economies, the currencies of many nations are under threat. There is a trade war developing in China and the US as both these countries are looking to their central banks to put in monetary policies to protect the currencies. 

In Europe, there has been a dovish turn that has seen the European Central Bank start to cut rates and print more money. 

It is these kinds of factors that the central bank are driving that is having such a major effect on the drive in price of Bitcoin. This stems back to the argument that Bitcoin, as an alternative asset, is becoming more and more popular as a safe haven. 

Global financial uncertainty

Having already announced federal cuts in the US, for the first time since Bitcoin was invested too, analysts anticipate more dovish announcements from the Federal Reserve at this year’s central banking meeting later this week.

China’s yuan currency is devaluing quite quickly as it fell below the watershed mark of 7 to the U.S. dollar on Aug. 5 and government bonds continue to be plagued by volatility, with little assurance of solid yields.

Of course, there is the ongoing financial crisis in Venezuela and Zimbabwe, which, on a less first-world level, have shown that in times of total economic collapse there is a big drive for Bitcoin as an alternative which still holds value. 

Performing well

Sender argues that the actions of developed market central banks are turning Bitcoin from a speculative instrument into a solid investment that can help to hedge big macro risks. 

He cites a report from Grayscale Investments’ research unit, which similarly argued that:

"Bitcoin has the potential to perform well over the course of normal economic cycles as well as liquidity crises, especially those involving currency devaluations," wrote the research department of Grayscale Investments, a digital currency asset manager in New York, adding that It has "store-of-value characteristics similar to real assets like gold, with hard-money attributes like immutable scarcity."

“Indeed, Grayscale frequently describes bitcoin as "digital gold," noting its use case not as a speculative instrument but as a way to hedge big macro risks,” continued Sender. “Its report contains a chart that shows that between the first week of May, when Mr Trump ratcheted up the trade war by raising tariffs on $200 billion of Chinese goods from 10% to 25%, to the first week in August, bitcoin rose along with gold, the yen and the Swiss franc -- but far outpaced these by gaining almost 105%.”

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