Despite being known as the world’s most volatile currency, bitcoin is now more stable than the British pound following the results of the EU referendum last month. Interest in bitcoin has grown and many are looking to trade the digital currency because it’s a safer bet in comparison to sterling.
According to The Independent, bitcoin is the most unstable thing in the financial markets and volatility is expected due to the controversies the currency has been involved with. However, with the cryptocurrency being a safer bet at the moment, Raja Raman, director of technology at Sapient Global Markets, explored how investors are attracted to the safest assets in times of crisis.
“In troubled times, most investors rush towards safe assets. Brexit has been one such recent event that brings back memories of the Lehman crisis. The most obvious solution is gold. Over the past few years, bitcoin has emerged as the most commonly used crypto-currency. By far, it has the largest market capitalisation among all such currencies,” Raman was quoted in Business Standard.
At the start of this year, the fall in Chinese stocks also boosted bitcoin above $450 when investors attempted to seek solace in the currency after the Shanghai Composite index fell by 7.3%. 80% of global bitcoin trading takes place in China and during this crisis period, many preferred to use the digital currency while the renminbi remained low.
“The Chinese Bitcoin Exchanges are being used as a means to exit the renminbi and as a flight to safety. Bitcoin is living up to its name as a form of digital gold,” CryptoCompare’s Charles Hayter said in CityAM back in January. According to Magister Advisors, bitcoin could become the 6th largest reserve currency, so we might just be witnessing the beginnings of the rise of digital currencies.
However, bitcoin exchange Coinbase Brian Armstrong highlighted that the price of bitcoin is not the best way of judging how well a digital currency is doing. “Sometimes, I feel like running a bitcoin company must be like running a public company. Everyone is so focused on the price, and that cause short-term thinking.”
The idea of keeping bitcoin public is synonymous with the attitude that the UK government had at the start of the year when the Chief Scientist advocated the use of the technology behind bitcoin, blockchain. Although, the general consensus of the financial industry is that blockchain is valued as a model for bigger and better things than bitcoin.
In conversation with bobsguide, Angus Champion de Crespigny, leader of blockchain strategy for Americas Financial Services at Ernst and Young, explored this view. “There has always been a lot of excitement around cryptocurrency. Now, the phrase “I like blockchain technology but not bitcoin” has been common within the financial services industry of late.
However, I think it’s too early to rule out bitcoin, as the technology provides a global, secure environment with embedded trust and that is very powerful. Rather than necessarily as a currency alternative, bitcoin should be seen as the fuel that is used to run the network where data can be exchanged.”