Whether it is the election of Donald J Trump as the U.S. President or the Demonetization woes that are affecting India, the fastest growing economy in the world, no fiat currency is immune from geopolitical risk.
Uncertainty about the road ahead leads to fluctuations and volatility. When fiat currencies come under pressure, it is only natural for people to look for alternatives. Gold has been one traditional hedge, but with the emergence of cryptocurrencies, people have more than just one or two options.
Today they can look to a myriad of cryptocurrencies like Bitcoin and Ethereum and not only hold them as a bet against fiat currencies but also transact in them and be free from government run money.
Rupee’s woes make the case for Bitcoin
Recent events have proven once again that the case for Bitcoin is a strong one. Take for example the Indian rupee, which is trading at historic lows since the Modi government in India unveiled demonetization on the midnight of Nov. 9, 2016.
Ever since then, the rupee has been hit rather badly. On Nov. 24, the rupee hit a record low of 68.85 against the U.S. dollar during the intraday trade on Thursday, according to the Economic Times.
This was the fifth losing session for the Indian currency. The Economic Times writes: “Sentiment in forex market turned highly weak due to consistent selling by foreign investors against the backdrop of demonetization and renewed concerns over Fed interest rate hike.”
If we look at the overall losses since the crazy policy of withdrawing 86 percent of Indian rupees from the market was unleashed by the government, the Indian currency has lost 2.5 percent of its value against the dollar.
So how is Bitcoin doing in India? We have covered this in great detail but needless to say it is trading at a premium. At the Indian currency exchange Unocoin, one Bitcoin was available for Rs. 65,748 - $955 - as against the price elsewhere which was around $741.08.
Turning Bolivars into Bitcoins
As the Quartz reports:
“When a national currency is tanking as badly as the bolívar, a stateless cryptocurrency that’s gaining in value suddenly sounds pretty appealing. It looks like at least some Venezuelans are turning their bolívar into Bitcoins to not only escape the spiral of devaluation in the state-issued, or fiat, currency, but to reap the profits of a Bitcoin price that’s been buoyant all year.”
Why Bitcoin makes sense
The natural question to ask is why Bitcoin is such a good hedge against risks that affect specific geographies and countries?
Well one thing about Bitcoin, that all of us are aware about, is that it is pretty much seamless. It can flow across borders and is not controlled by a central authority.
Since there is no central bank or finance ministry dictating terms, it is quite the case that it will not be affected by irrational national policies or political uncertainties.
Bitcoin is also pretty much immune from manipulation by nation-states and capital controls. These factors make Bitcoin the ideal currency in difficult times and while it has taken difficult times for people to realise this, the more people who use Bitcoin in adverse situations, the more it will become a revelation for others.
Retail investors should adopt Bitcoin
The trouble with fiat currencies is that everyone thinks that what happened in Venezuela or Argentina or India can’t happen on their own turf.
The fact remains that political uncertainty can affect relatively stable currencies and, as history has shown us, lead to people losing money and sleep.
The pound crisis of the 1970s or the Euro crisis, where Greece was tethering on the brink of insolvency, are timely reminders of what can happen, even within European countries.
Since it was founded, Bitcoin has pretty much remained free from this risk and this is reason enough that everyone should consider having some exposure to it, as at least a means of diversification and hedging risk.
Whether it is Brexit, Trump, Modi or a South American shaky currency, Bitcoin is an option that the retail investor can no longer afford to ignore and for those of you that are still not convinced, you can always wait for the next crisis to hit to become adopters.