The ongoing trade war under Donald Trump has deeply affected cryptocurrency prices, forcing many investors to shift towards less volatile assets. However, Bitcoin has shown signs of resilience, increasing 14% in the last month due to its perception as ‘digital gold.’ Institutional investments in Bitcoin ETFs have surged, and there’s a growing conversation around Bitcoin’s potential role as a new reserve currency. Despite concerns, Bitcoin’s unique risk-reward profile suggests it could remain a strong player, even during tough economic times.
In recent months, the ongoing trade war initiated by former President Donald Trump has significantly impacted the cryptocurrency market, resulting in steep price declines across the board. Many cryptocurrencies, not unexpectedly, are being shed by investors who are increasingly leaning towards safer assets instead of the volatile nature of digital currencies. However, amidst this cacophony, Bitcoin appears to be carving its own path of resilience and potential growth.
Over the last 30 days, Bitcoin saw a remarkable price increase of about 14%. This rise can be attributed to the renewed interest in the idea of Bitcoin as “digital gold”—a notion that’s gaining traction among investors. The asset is being seen as a reliable store of value, especially during times of economic strife and geopolitical turmoil, much like traditional gold metal does. While sceptics remain, evidence seems to be pointing towards Bitcoin performing impressively under pressure, outpacing gold in several recent scenarios.
A pertinent example comes from a comprehensive report released by BlackRock last September, titled “Bitcoin As a Unique Diversifier.” The report evaluated Bitcoin’s performance against external shocks spanning from 2020 to 2024, covering key events such as the COVID-19 outbreak and the invasion of Ukraine by Russia. Astonishingly, Bitcoin outperformed gold in five out of six situation analyses over the long term, even holding its own in half of those scenarios in shorter terms too. This data bolsters the case for Bitcoin, suggesting that it can serve as a robust asset in turbulent times, which may explain its recent upswing in value.
Another critical development fuelling Bitcoin’s resurgence is the surge in institutional investment. Over the past year and a half, the introduction of spot Bitcoin exchange-traded funds (ETFs) has proved momentous, with over $100 billion drawn from investors eager for straightforward Bitcoin exposure. These ETFs, which began trading in January 2024, are hailed as one of the most successful product launches from Wall Street in recent decades, attracting hedge funds and the larger banking sector, including sizable pension funds. Larger institutional investors, including sovereign wealth funds, could be next to jump on the bandwagon.
Moreover, on the governmental side, the pro-crypto stance taken by the Trump administration is noteworthy. This has sparked various initiatives to promote Bitcoin within the United States, notably the establishment of the Strategic Bitcoin Reserve in March, which recognised Bitcoin as a national strategic asset. This governmental endorsement might boost the digital currency’s legitimacy among traditional investors.
With rising tariffs leading to speculation that the dominance of the U.S. dollar—once the global reserve currency—might be waning, discussions around Bitcoin potentially filling that role are becoming increasingly popular. The dollar’s recent dip to three-year lows and declining U.S. equity performance create an environment ripe for “de-dollarization”, where investors might consider alternatives like Bitcoin, due to its non-sovereign nature and global appeal. This notion may still be distant, but it certainly illustrates Bitcoin’s potential importance in future economic structures.
Bitcoin’s unique risk-reward ratio also stands out, as noted by BlackRock. It tends to function both as a high-risk investment during bullish market periods and a stabilising asset when the market heads downward. Presently, it seems prudent to lean towards Bitcoin’s stabilising aspects amidst widespread economic uncertainty. Despite the adverse impact of the trade war on the broader crypto landscape, Bitcoin’s strength and potential for growth suggest it could be a beacon of stability in a rocky financial sea.
