Investors Rush to Bitcoin Due to Inflation and Fallen Fiat
Recent times have seen a spike in the trading volume of Bitcoin. But it does not say there has been an increase in the broad adoption of the cryptocurrency, it only signifies that it is getting back to being a safe-haven asset.
Bitcoin’s Debated Reputation
The reputation of Bitcoin as a safe-haven asset has continuously been in dispute among experts in the financial system. The absence of a centralized authority, the propensity to extreme volatility, and its relative newness made it difficult to classify Bitcoin as a hedge against inflation. But we have seen within the past year that investors have chosen Bitcoin in times of disorder.
Look at the Turkish Lira for instance. It has been on a path of constant fall since 2018. The cumulative inflation in Turkey within the last three years has risen above 100%.
The Lira has lost more than 26% the year against the US Dollar. PwC said in a September report that the Turkish economy is in hyperinflation. The report said the country’s worsening economic decline began last year and has gotten worse in the middle of the last summer.
The exchange rate was 1 US Dollar to 3.5 TRY in 2017, but it is now at 1 US Dollar to 18 TRY. consequently, there has been an increase in the trading volume of the Lira to the Dollar, and it has risen further since this year began. However, Turks have not flocked to only the US Dollar.
There has also been an increase in the Lira and Bitcoin trading volume on centralized crypto exchanges. Binance report revealed that BTC/TRY price rose to its all-time high at the start of the year while the pair recorded its highest trading volume in 24 hours in May.
The British Pound saw a flash crash on the 26th of September in the same category on record as the Black Wednesday of 1992 as it lost 4.3% versus the US in one day. The currency’s decline followed the government’s economic plan to fight inflation. On the same day as the flash crash, the trading volume of the BTC/GBP pair saw its all-time high as it rose by more than 1,200% within 24 hours.
Government Interventions
Japan did not have it much better than other places. The country’s central bank has pumped in close to 3.6 trillion Yen to boost the currency’s foreign exchange rates against swift decline. It is believed that the stated fund was used up in one intervention on the 22nd of September. The intervention was designed to help the Yen which has an additional 20% versus the US Dollar this year.
The plan did not quite go as planned. The Yen sold at 144 to the Dollar before the intervention and sold briefly at 140. The Yen fell to selling at 145 versus the Dollar the next day and washed off all the intervention.
Investors in Japan also moved over to Bitcoin as the Yen fell helplessly. The BTC/JPY pair’s trading volume reached its peak while the intervention was going on.
Bitcoin might not currently be widely adopted but it is serving as a safe-have commodity for existing investors. Macroeconomics has pushed them back in.
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