There’s a lot of mystery surrounding what exactly drives Bitcoin price. That said, historical trends seem to indicate that the cryptocurrency markets get swayed by global events and geopolitical tensions.
The “BTC as a haven narrative” is an old tale, and many discussions have been held over the properties of this digital asset that would allow it to serve as a financial haven. The issue of the possible influence of the geopolitical and macroeconomic events, particularly those causing a sense of uncertainty in the global economy, is also a concern.
The recent events the world witnessed have provided much-needed first-hand evidence in the discussion of BTC’s reaction to geopolitical circumstances. Bitcoin has somewhat started to act like gold in global markets, but far more responsively due to it being an online invention that is more adjusted to the modern digital economy.
From US-China news on trade to the coronavirus, this article will explore how BTC tends to act as a safe haven asset during major global disasters.
Military Tension between the U.S. and Iran
Generally, Bitcoin and other cryptocurrencies shouldn’t fluctuate when an unrelated event occurs in the world. Since they are decentralized currencies, they are not pegged to any central bank or government.
Nevertheless, since people give the digital currency value, and people are affected by what goes on in the world, it is logical for the bitcoin price to fluctuate during major global events.
Earlier this year, news broke that the U.S. had executed Iran’s top general, Qasem Soleimani, in a drawn strike. Following the announcement, stocks plunged overnight, with the significant indexes opening down 1% on 3 January. 2020. Still, amid the market volatility, safe-haven investments began to rally immediately.
BTC was up by 5% the day after the assassination, and lesser cryptos known as altcoins were also gaining value. This seemed to provide some proof that market participants do bid up the bitcoin price in the face of significant geopolitical uncertainty.
In fact, prices moved upward in the hours after the event with a steep but gradual slope (not the sharp price movement associated with forced liquidations on futures’ positions), with the evidence suggesting a connection between BTC and the escalation of military tensions and serving as a validation of the safe-haven theory.
This chart of that action shows global professionals reacting to the news much faster than the private investors. It also indicates that the hike surge might be the result of Middle Eastern retail piling into BTC as a means to secure their stocks rather than the relatively non-existent institutional currency.
From the chart, for investors looking to trade during what might be a U.S./Iran escalation, BTC is the place to do it due to its scarcity when compared to oil and gold.
Bitcoin is the best place for flight capital and haven capital, as the token can generate the sort of buying surge a country like Iran could create were the situation to escalate into a large scale conflict.
The U.S. vs. China Trade War: The Impact on Bitcoin
While examining how the bitter trade war between the U.S. and China influenced the bitcoin price in recent months, we can begin in May 2019 when President Trump threatened to raise tariffs on Chinese imports to 25%, a significant increase from the old level of 10%.
During that same period, limitations were placed on the Chinese tech giant, Huawei, to halt them from selling their smartphones in the U.S., and Trump’s administration eventually slapped tariffs on $200bn worth of Chinese goods.
Following the tariff war, BTC prices steadily rose from the $5,300 mark and ended at upwards of $8,550, an upsurge of more than 60%. This led some in the crypto space to point to a pretty obvious connection between Bitcoin’s performance and the economic stalemate.
The course of events in August 2019 was also particularly telling to how the trade war affected BTC. At the beginning of the month, President Trump proclaimed his government would slap additional tariffs on another $300bn of Chinese imports.
In the first week of that month following the tariff increment, bitcoin price rose from $10,405 to $11,982. But once US-China trade relations took a decisive turn on 13 August 2019, when Trump stated that some of the proposed tariffs would be delayed until Dec. 2019, BTC dropped rapidly to $10,106 over 48 hours.
More interestingly, in mid-December, the digital token entered red territory when the U.S. and China announced that a preliminary agreement about their trade deal had been reached, with specific tariffs canceled and China agreeing to buy more American products.
This shows that a swift fall in BTC prices can be expected when good news emerges about initial disputes driving its price.
How BTC Has Reacted to the Coronavirus
One story that has recently been dominating the headlines is the coronavirus, which has infected tens of thousands of people and prompted fears of a global outbreak that is difficult to control.
In the week leading up to 23 January 2020, BTC fell by nearly 4%, coinciding with Wuhan suspending air and rail travel as a quarantine measure.
Shortly after, the BTC price started pumping from the $8,300 area on 26 January – three days after the Chinese city of Wuhan was put under quarantine.
Currently, the BTC price has passed the $10,000 mark, and many peeps in the crypto community believe the recent surge is due to the coronavirus outbreak in China.
BTC seems to have benefited from strong safe-haven demand triggered by coronavirus fears, and the price may well rise even further to the $10,000 – $11,000 mark, as the crisis drags on.
This sentiment has been reiterated by several leading figures in the crypto world, with Nigel Green, CEO of deVere Group, telling CNBC that BTC’s recent price action has primarily been driven by the coronavirus epidemic and its adverse economic consequences.
The reason why investors park their assets in gold when uncertainty hits the global economy is that the precious metal has a low correlation to other asset classes. The same is true for BTC and other cryptocurrencies.
Both gold and BTC are non-correlated to traditional asset portfolios such as stocks, bonds, or real estate, meaning that a global stock market crash does not influence them.
Bitcoin has the upper hand as a safe-haven asset as it is even slightly negatively correlated to gold, making it an excellent portfolio addition in periods of economic uncertainty or crisis.
Moreover, politically motivated institutions such as central banks cannot manipulate BTC prices via monetary policies, making the digital asset even more attractive as a crisis hedge.
When all is said and done, regardless of whether we’re looking into the US-China latest trade developments, the coronavirus, or political tensions in the middle east, it’s undeniable that global events are a vital driver in BTC prices, and is likely to remain so into 2020 and beyond.