Geopolitical tensions could be contributing to surge in Bitcoin prices


Analysts and investors have quantified nearly a dozen fundamental drivers that have propelled Bitcoin forward over the past four months, but there is always room for one more. The latest argument to be supported by the evidence of the historical record is that geopolitical tensions are shifting the tides of capital flows more in favor of Bitcoin and its altcoin brethren, at least more so than in the past. Bitcoin has long been known as a “safe haven” within the crypto arena, but global investors are beginning to take up the BTC mantle as a respectable and creditable “store of value” when times are tough.

In the past when storm clouds formed on the economic scene, a subset of investors, typically the ones with weak hands that scare easily, took action immediately, moving their capital from risky positions to the accepted safe havens of U.S. Treasury Bills, Gold or other precious metals, and the Japanese Yen. Demand for T-Bills would put buying pressure on the U.S. Dollar, one of the reasons why its index has stayed in the upper nineties for the last ten months. Investors, however, have also been following the good fortunes of cryptos, recording unheard of returns during economic times of stress.

Trump’s tariff wars have ignited new flights to safe havens, especially in China. Tuur Demeester, the founding partner of Adamant Capital, explained how the Yuan and Bitcoin have correlated:

On May 5th, the Chinese yuan started weakening against the US dollar, and 13 days later traded 2.5 percent lower – a huge move in forex terms. Remarkably, that was also the week that bitcoin broke above the resistance of $6,500.

Doesn’t China have a ban on cryptos? Arthur Hayes, CEO of BitMEX, believes that Chinese officials never shut down the OTC market. Although several crypto exchanges exited China, they have retained ties with Chinese clients:

The OTC market is vibrant, and these venues have found politically acceptable ways to allow buyers and sellers to meet in China. Zhao Dong, arguably the largest OTC trader in China, is one of the main people responsible for the successful $1bn Bitfinex IEO (Initial Exchange Offering). He went on the record supporting Bitfinex to the Chinese crypto community, and his clout and network helped Bitfinex win back the Chinese traders. China still matters.

One primary consequence of prolonged trade war negotiations is that “FUD”, i.e., fear, uncertainty, and doubt, has gripped international financial markets. The current narrative is that global economic growth is slowing quicker than central bankers had suspected. A few recession models suggest a 40% chance of a recession within the next twelve months, and analysts are already predicting that global monetary policies have no choice but to become more accommodating. India reduced interest rates last year. New Zealand and Australia followed suit, and the Fed is likely to get onboard. The dilution of fiat currencies and the possibility of economic turmoil speak to Bitcoin’s strengths.

Mounting fundamental pressures eventually translate into the other “F” phrase that has been bandied about of late – “FOMO”, the fear of missing out. Peter Brandt, a 40-years trading veteran, is of the mind that “FOMO” has carried the market to a point where it has to correct: “This is the FOMO phase of the advance. Once the majority of sold-out crypto bulls capitulate and chase this rally, a more sizable correction will likely occur, stopping out the same bulls, who are chasing this advance.”

Other respected analysts suspect that FOMO has only been gradually building, the tip of the iceberg, so to speak. Thomas Lee, the co-founder of Fundstrat Global Advisors, thinks a major “FOMO” push is still a possibility:

If bitcoin somehow manages to get to [$10,000], it’s very likely going to make a run to $40,000 within five months. Every institution is going to realize, ‘look at $10,000 it’s likely to go back to its all-time high, which is double. There are very few things that can double.’ So I think FOMO truly gets triggered once bitcoin hits $10,000.

If these geopolitical hypotheses are correct, then an entirely new source of capital could flood the cryptocurrency scene over the next 18 months. At present while these discussions have been taking place, Bitcoin, however, has been in range mode, staying within $7,600 and $8,200. It rests at $7,800 at this writing. FOMO is absent. Are the bulls exhausted? Will bears bring about the much-heralded correction that analysts expect? Or, will BTC consolidate, break out, and push onward and upward? Stay tuned.

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