Bitcoin is proving to be the ultimate currency hedge for those stuck in volatile economies. Vinny Lingham, CEO of identity startup Civic, explains Bitcoin's 2016 price surge in "Bitcoin in 2017: A Currency Devaluation Hedge for Emerging Markets" as being caused by macroeconomic factors and a short squeeze after $800 was breached.
The macroeconomic factors include both monetary and geopolitical volatility:
Demonetization in places like India and Venezuela, geopolitical concerns over the Trump election and most importantly but most misunderstood, the recent Fed rate hike (which puts pressure on emerging market currencies, strengthens the dollar and creates a surge in the forex/BTC trading).
Lingham explains the short squeeze as simply not enough sellers in the $800 - $900 range, or a "hollow supply."
In my own paper posted to SSRN last year, "Does Governance Have a Role in Pricing? Cross-Country Evidence from Bitcoin Markets," I used some fancy econometrics to explain Bitcoin price premium across countries to be caused by economic and financial repression; people in more repressed countries are willing to pay more to move funds out.
The evidence from Bitcoin pricing and all of the anecdotes we hear from places like Venezuela and Argentina, support the case of Bitcoin being a wonderful way for people to save themselves from bad economic and monetary policies.
Everything else equal, if we continue to see instability in parts of the world, we should expect continued growth of Bitcoin as an alternative safe haven asset.
What are your thoughts?
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Rob Viglione is a PhD Candidate in Finance @UofSC with research interests in cryptofinance, asset pricing, and innovation. He is a former physicist, mercenary mathematician, and military officer with experience in satellite radar, space launch vehicles, and combat support intelligence. Currently a Principal at Key Force Consulting, LLC, a start-up consulting group in North Carolina, and Head of U.S. & Canada Ambassadors @BlockPay, Rob holds an MBA in Finance & Marketing and the PMP certification. He is a passionate libertarian who advocates peace, freedom, and respect for individual life.
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