Grayscale report: Bitcoin has been proven as hedge against global liquidity crisis

18 Jun, 2019
by Fifi Arisandi
Grayscale report: Bitcoin has been proven as hedge against global liquidity crisis

Crypto asset manager, Grayscale Investments just released a report that mentions Bitcoin as a hedge against global liquidity crisis.

According to the report, compared to any other assets, Bitcoin has a distinct set of properties that allow it to perform well in both normal economic cycles and market disruptions.

Highlighting several “macroeconomic shocks”, such as Grexit, Brexit, China’s structural devaluation of Renminbi and two Trump shocks, Bitcoin is said to have outperformed other investments as a store of value.

Below are the interpretations of the largest cryptocurrency’s capability to hedge against liquidity crisis:

Bitcoin gains when Grexit loomed

Back when Greece underwent a physical liquidity crisis from April to July 2015, the government decided to close state banks and imposed strict capital controls on transactions.

During the liquidity freeze, Bitcoin emerged as “one of the only means by which to transfer value in or out of Greece”, which “reinforce this new asset’s ability to return the power of control to the individual who holds it”, so the report stated.

Data revealed that as per July 13, 2015, BTC saw returns of 28 percent versus an average of -1.7 percent for 20 other markets and currencies.

China’s currency devaluation

Between August 2015 and December 2016, the Chinese government decided to devaluate Renminbi (RMB) by 1.9% in an attempt to stimulate export driven growth.

The policy caused a five-month selloff of global risk assets in favor of wealth preservation assets, however, Grayscale’s report mentioned, “Between the day of the announcement and the trough of the drawdown, Bitcoin largely outperformed the following major markets and currencies, producing a cumulative return of 53.6 percent versus an average return of -10.1 percent.”

Apparently, BTC was used to hedge against the liquidity risk caused by the massive sellofs by Chinese investors, as reported by Coindesk.

Global selloff on GBP and EUR after Brexit referendum 

The UK’s referendum vote to separate from the EU was followed by selloff and decline in both GBP and EUR. During the first one-day of the globall selloff, Grayscale researchers claimed that “bitcoin was a top performing asset, boasting a return of 7.1 percent on strong volume, versus an average of -2.1 percent for the rest of the group of currencies”.

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