Can Bitcoin Cement its Position as a Hedging Instrument in the Midst of Economic

[JessicaVL]

Having money and money having value are two completely different things. Traditional currencies such as the US Dollar, Chinese Renminbi, Euro or Pound are all inflationary in nature due to the fact that central banks can print them whenever they want in whatever quantity they want. As a result, the money of today has more value than the money of tomorrow and significantly more value than the money of say, a year from now. Another factor that has weighed in on traditional currencies is the threat of market uncertainty. In the midst of economic turmoil or uncertainty in the financial markets, investors rush to move their investments into safe-haven assets to retain the value of those investments.

Gold has remained one of the most popular, if not the most popular, safe-haven asset to which investors turn in uncertain times. However, the emergence of a new asset class in the last decade, in the form of cryptocurrencies, has not only offered another avenue for investors through which to diversify their portfolios, but has also led many to believe that Bitcoin is  “digital gold” and a good safe haven.

Why has Bitcoin Been Touted as “Digital Gold”?

One of the main reasons why gold has been popular among investors as a hedging instrument against inflation or uncertainty is the fact that gold is a scarce and limited resource, a characteristic shared by Bitcoin. There can only ever be 21 million Bitcoins, not a single one more, essentially making the digital currency a deflationary one, whose purchasing power, theoretically, increases every day. In addition, Bitcoin has several characteristics that make it superior to gold.

Bitcoin can be held, moved and managed far more easily than gold. The fact that Bitcoin resides on the blockchain and not in the physical world, allows it to be transferred almost instantaneously across physical and geographical boundaries together with being spent in a more comfortable way than gold.

However, the question remains: is this enough to make Bitcoin a good hedge against economic uncertainty and inflation?

Bitcoin Vs Gold: Is the Comparison Really Justified?

We are no stranger to Bitcoin’s volatility. The price fluctuations that Bitcoin undergoes on a daily, weekly or even  yearly basis are factors that cannot be ignored, especially when we are looking to hedge our investments against them. Bitcoin traded at around $325 in early January, 2015 and remained somewhat stable for the next 12-15 months before receiving  more attention from the investor community. Since then, Bitcoin has experienced several periods of volatility. At the beginning of 2017, one Bitcoin was worth around $1,000, then by year end, it went up to nearly $20,000 before crashing down to $3,500 by the end of 2018. The Bitcoin bulls rallied again in 2019 and the price has fluctuated between $3,700 and $14,000.

Read the whole article here: https://www.etoro.com/blog/market-insights/is-bitcoin-a-good-hedging-instrument-at-times-of-uncertainty-in-the-market/

[Docnaster]

Why on earth would Bitcoin be considered a hedging instrument? It's literally one of the most volatile assets on earth, definitely not good for hedging...

Maybe you could use something like short Bitcoin futures or options to hedge your spot positions, but I wouldn't recommend using these to hedge positions in other asset classes, unless you're talking about hedging against a declining economy in general.

But that's some way off and probably not what most BTC investors consider when first getting into the market.

[Baofeng]

Is bitcoin really being used to hedge against geo-political/economic woes? It has been speculated, but so far we can't really say if it being taken advantage of. The only use case we have seen so far is Venezuela or to an extend the Zimbabwe crisis but there are still a lot of lingering questions.

I guess if I'm a wealthy person and wanted to hedge all my assets, I will still go with Gold and other investment instruments. It's not that bitcoin is no good, but we all know that it is very volatile and smart investors doesn't like that, just saying.

[CryptoBry]

Bitcoin can now be considered as one of the known safe havens in the category of gold or maybe other instruments but since it is the most volatile of them all there will always be risks associated with it and new investors should be careful that they don't jump into it with both feet or their eyes close. Nonetheless, if one happen to have started Bitcoin maybe two years ago, the ROI is definitely so good and for many good traders Bitcoin is offering a unique opportunity to cash in on its volatile nature.

[piebeyb]

That is why more and more money is printed without gold backup and inflation may occur but as long as it keeps printing bitcoin prices can continue to be bought unlimited with currency values, it seems like bitcoin will still survive even if there is a world war, so maybe this is what makes bitcoin as a good hedge and as a digital gold that is not formed but is valuable, bitcoin will recover to see the price increase at the beginning of 2020, just look at the avatar I use 

[Youghoor]

Why on earth would Bitcoin be considered a hedging instrument? It's literally one of the most volatile assets on earth, definitely not good for hedging...

Maybe you could use something like short Bitcoin futures or options to hedge your spot positions, but I wouldn't recommend using these to hedge positions in other asset classes, unless you're talking about hedging against a declining economy in general.

But that's some way off and probably not what most BTC investors consider when first getting into the market.

This is exactly my point.  People are so interested in making and giving some qualities to bitcoin without knowing the purpose behind the development of it.  Bitcoin is just a financial entity meant for the exchange of goods and services just like physical fiats like US dollars. People need to understand the reasons behind bitcoin before making unnecessary comparisons

[audaciousbeing]

Why on earth would Bitcoin be considered a hedging instrument? It's literally one of the most volatile assets on earth, definitely not good for hedging...

Maybe you could use something like short Bitcoin futures or options to hedge your spot positions, but I wouldn't recommend using these to hedge positions in other asset classes, unless you're talking about hedging against a declining economy in general.

But that's some way off and probably not what most BTC investors consider when first getting into the market.

The reason for this kind of thought is that we have come to think that bitcoin answers all of the questions and provides solution to all of our financial problem and I also think is the myth that the price of bitcoin would continue to be on the increase thereby providing a safe investment net in a case where the economy is crashing here and there but in the real sense, bitcoin is not independent of happenings in the economy and that could have a ripping effect on price.

[acdc]

I don't think bitcoin is an economic hedging tool because the value of bitcoin is not stable, we can see the price of bitcoin increase or decrease by 10% within a few days. An economic risk prevention tool should be a highly stable and highly valuable asset.
In the history of gold is the best tool to prevent economic risks, no matter how the times change, gold is still a high-value metal.

[davis196]

Thanks for copy pasting another bullshit article OP.
The people above me already answered why this stupid theory about bitcoin being a hedge instrument can't be right.Bitcoin is a speculation instrument and will always be.Investors are buying risk,when they buy BTC.
Hedging is actually "selling risk" to the market speculative traders.

[hatshepsut93]

It's logical to think that when fiat currency loses its value, Bitcoin will go up, but people forget that when fiat currency loses its value, it's usually in single or low double digits of percentage range, while Bitcoin moves in those magnitudes almost every week. So, om practice its a very unreliable hedge, you can easily lose even more money in short term, and people who look for hedges seek to reduce risks, not increase them even if there's a good payoff.

[ChrisPop]

Due to its extreme volatility measures Bitcoin does not make a good hedging strategy for the ones who can't digest big fluctuations of their portfolio, but combined with other assets it could make quite a great risk/reward combination. I mean the volatility is high, but an investor is also exposed to significiant potential gains.

[HabBear]

Have you read the book Bitcoin: Digital Gold by Nathaniel Popper?

It's an incredible historical record of the origins of Bitcoin and the earliest major events. Popper does a great job creating a story out of this historical facts and was, by random circumstance, able to get close to several early influencers in the Bitcoin community.

There's also a newer book called the Bitcoin Standard, a play off the gold standard that the US Dollar's value used to be indexed by.

Both are solid reads.

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Bitcoin can be held, moved and managed far more easily than gold. The fact that Bitcoin resides on the blockchain and not in the physical world, allows it to be transferred almost instantaneously across physical and geographical boundaries together with being spent in a more comfortable way than gold.

I love this fact of bitcoin. It's great to tell people that the fastest way (sans blockchain) to transact $10,000 from one major city to another is by flying/driving it there. Because via bank it'll take 3 days. And with the blockchain it takes 10 minutes! No one argues with that!