The Strange Positive Effect Political Uncertainly Has on Bitcoin
Brexit was boost for the virtual currency, which in some ways is become to the digital age what gold has always been for people worried about current affairs.
Are you betting on a Trump victory this November? Las Vegas bookies would give you 11/4 odds on that play. Nate Silver, of FiveThirtyEight fame, gives Trump a 13.5 percent chance of an election win. Most polls and political pundits appear to have gravitated towards agreement: it is quite unlikely Trump will be successful this fall. If you do happen to have a hat in this November’s race, it might be wise to consider a hedge: bitcoin.
From Brexit to TrUpset?
After the surprise Brexit victory in the United Kingdom last month, it is difficult not to draw parallels to Trump’s current low expectations for winning the presidency. In fact, less than a year ago, very few people correctly estimated Trump’s chances of locking up the Republican nomination. To hear the certainty of seasoned analysts should bring pause. In the past, such confidence led to complacent investments without hedges. When the very thing that was unlikely occurs, the markets roil and quickly rebalance. Such seismic shifts can feed on themselves, where market uncertainty breeds further market uncertainty. With enough momentum, this is how financial crises start.
Bitcoin has proven to be a resilient asset during times of market upheaval. In early 2013, during the financial crisis in Cyprus, bitcoin began an epic sprint to higher valuation. Later that year, as the debt-ceiling debate reappeared and government shutdown fears loomed, bitcoin price again saw remarkable gains. Last year as the Greek bailout referendum results came in, bitcoin demand immediately jumped. And in July, while markets were shaken as Brexit referendum results were announced, bitcoin prices again jolted upwards. Whether it is speculators buying bitcoin in anticipation of it rising, or an actual flight to safety, the end result is the same: a higher bitcoin market price. Through crisis after crisis, something that may started as pure speculation and gambling has slowly become a self-fulfilling prophecy.
Related: 5 Ways to Use the 'Trump Effect'
The technology was forged during a time of extreme uncertainty: the housing financial crisis of 2008 - 2009. While banks at the time feared their counter parties, bitcoin was designed to not have a counter party. Central banks began fighting deflation by printing money. Bitcoin, on the other hand, has a fixed supply and can not be printed. As a result, Bitcoin has been referred to as digital gold, an asset with many similar qualities. The difference of course, is that bitcoin can be sent to the other side of the world instantly. There’s little wonder it has soared in popularity.
Imagine if history repeats itself this November, and the unexpected occurs. The Brexit vote outcome reminds us that the future is never certain. If there is a “Trump Upset,” we may find markets on an even less confident footing than we did after the Brexit referendum. Boats tend to rock when passengers move from one side to the other. When a widely accepted consensus gets it wrong, many passengers find themselves in the wrong seat. If the rocking gets too rough, investors might seek safety in bitcoin, just as they have in the past.