Bitcoin Gaining Relative Value as EM Currency Diversifier

LAGOS (Capital Markets in Africa) — Expanding utility of Bitcoin as an emerging-markets currency diversifier and store-of-value is playing out with the Turkish lira’s August swoon. Despite weakness in cryptocurrencies and gold, Bitcoin is showing resilience. It may be another failed bounce but still indicates greater integration of Bitcoin into global markets. 

Bitcoin, New Currency Diversifier vs. Gold
Declining gold in U.S. dollar terms vs. rallying Bitcoin, coincident with the weekend plunge in the Turkish lira, may indicate a shifting paradigm in this increasingly digital world. Global currency diversification and store-of-value are improving attributes for the digital currency that’s impractical for its initial purpose of a peer-to-peer electronic cash system. Gold, embedded deeply in Turkish life, is up over 80% in 2018 in lira terms to Aug. 13 and doing what it’s supposed to in diversifying fiat currency debasement.

Bitcoin remains above its June low despite new nadirs for the broad crypto market and gold. The metal is near good support at $1,200 an ounce, while Bitcoin is showing divergent strength, with its market dominance the highest it’s been this year at about 53% on coinmarketcap.com.

Recent History: Bitcoin, the EM Diversifier
With both in downtrends, Bitcoin should fare better than gold on continued emerging-markets contagion, if recent history tells us anything. Bitcoin gained notice as a potential currency and EM diversifier in 2015-16 when the MSCI Emerging Markets Index plunged and gold dropped, too. Meanwhile, Bitcoin rallied. From the May 2015 peak to January 2016 low, the EM index gave back about one-third and gold declined 7%, yet Bitcoin surged by about 60%. Gold was in the last gasp of the bear market, bottoming with the initial Federal Reserve rate hike at the end of 2015.

Bitcoin commenced the bull market that brought it to the 2017 peak. Timing was likely at play, making some of the correlations spurious, but indications are further declines in EM should support both Bitcoin and gold, which is near the $1,200 support zone.

Bitcoin Should Hold Top Spot on the Way to the Mean of $1,360
Bitcoin “maximalists” are gaining ground, but the price should continue to gravitate toward the continuous mean of $1,360 and remain there awhile, if history is a guide. This average has a history of marking troughs. In 2011 and 2015, Bitcoin returned to the continuous average, then consolidated there for about a year before lifting off again. About 2,000% above the mean has marked peaks. The extent of the 2017 hype indicates the Bitcoin mean should remain a gravity pull.

The stars seem to align for Bitcoin near $1,000, the average price from 1Q17 and the peak from 2013. In that subsequent correction, the previous peak was at about the trough. If the Bitcoin price remains unchanged in the next year, the mean should be near $1,900. Maximalists believe Bitcoin will remain the predominant cryptocurrency.