From Silk Road to Safe Haven

Over the last few weeks, Bitcoin has created a whirlwind of conversation around how it can provide investors with a hedge against US inflation and tumbling yields. As an investor in Bitcoin since late 2013, it is almost surreal to see Bitcoin evolve from a pseudo-dirty word – almost an immediate association to the Silk Road days – to now be included in the same conversation as gold as a potential safe-haven for US investors. But is there any merit to this narrative and how are investors reacting.

Let’s start by analyzing the last 72 hours where Bitcoin was able to eclipse the $12,000 resistance level, which represented a 12 month record high . However, we quickly saw a pullback below the $11,700 marks as key financial indicators illustrates signs that this current rally was overbought – leading some investors to initiate profit-taking.

Bitcoin: 60 Day Prices (Source: TradingView)

Overall, long-term sentiment remains bullish across a number of the top investment firms as long as Bitcoin remains above $10,500 – it’s former resistance-level and February high. With that said, there is one key element that can help buoy Bitcoin from potentially falling below this mark: the US Dollar.

As a traditional safe haven, the US dollar has faced inflationary impacts from quantitative easing enacted by the Federal Reserve at the start of the COVID. Recently, Goldman Sachs shared, “Our FX [foreign exchange] strategists believe that the recent decline in the USD is just the beginning of a larger structural downtrend in the greenback.” The result of a weaker dollar, aside from the macro impact on the economy, is that investors tend to look for other investment vehicles to put their money.

With concerns of the USD’s devaluation, investors are increasingly looking towards gold and Bitcoin. Both of these assets, which have limited supply, have shown strong signs of correlation as they’ve both increased their value over the last few months.

Bitcoin and Gold (Source: TradingView)

A sign that this correlation could be fruitful for investors is the actions taken by Warren Buffet to invest in the second largest gold producer, which occurred as he divested from financial stocks. As an outspoken critic of Bitcoin, this is an interesting move from Buffett as he held a similar sentiment to gold at one time (as highlighted by Travis Kling from Ikigai Asset Management):

Warren Buffett on Gold in 1998 (Source: Twitter)

As we head into the heart of election season, it will be telling to see whether evolving economic factors and overall investor sentiment will provide Bitcoin enough support to eclipse the current resistance zone. Whether Bitcoin is destined to break $20,000 or retest $10,000, it’s imperative to monitor variables outside of the standard financial indicators: Treasury yelds yields, BTC’s continued correlation with gold, institutional investment, and S&P 500 performance.

Previous Analysis:

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In this article:
  • BTC
  • $51230
  • $51 + 2.4%
  • BTC
  • $51230
  • $51 + 2.4%
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