Bitcoin surges on Brexit, is its safe-haven attribute a false proposition?

On June 24, 2016, the result of the Brexit referendum was made public with 51.9% in favor and 48.1% against, which caused an uproar in the global capital market. In the stock market, Germany plummeted by nearly 10% after opening, Britain plummeted by 9%, France fell by 11%, Spain fell by 17%, and Greece fell by 12.7%; in the foreign exchange market, the pound fell by more than 10% against the US dollar, and the offshore RMB exchange rate against the US dollar fell by more than 1%. Risk aversion has become a common goal pursued by global investors. As a traditional safe-haven asset, gold has naturally become a popular investment product. On June 24, COMEX gold rose by 4.43%. Unexpectedly, Bitcoin trading was also very active, rising by 20% at one point. Can Bitcoin become a new safe-haven asset? This long-debated topic has once again been hotly debated.

Figure 1: Bitcoin to Ruble trend chart from January 2014 to December 2014

Let's review the history of Bitcoin and explore the relationship between Bitcoin and major events in the capital market. On December 15, 2014, the Russian ruble fell against the US dollar by the largest amount since 1999. According to CNBC, Russians are buying Bitcoin for risk hedging. The reasons given are as follows: According to data released by bitcoincharts.com, the number of transactions between Bitcoin and the ruble soared to 819 on December 16, while the average of the previous 30 days was only 230. This is equivalent to a 250% surge in the number of transactions. However, the above reasons are still insufficient to support Bitcoin's risk hedging function. From the perspective of Bitcoin, due to its large value fluctuations, it is not suitable as a safe-haven asset. From Figure 1, it can be seen that from January to December 2014, Bitcoin entered a downward channel against the US dollar, which means that when the ruble depreciated, Bitcoin also depreciated. Therefore, the claim that buying Bitcoin can hedge is not valid. Although it is impossible for Russians to preserve value through Bitcoin, it is an indisputable fact that the trading volume has increased. So what is the purpose of Russians using Bitcoin?

Faced with the sharp drop in the ruble, people who hold rubles usually have the need to transfer assets and hope to preserve their value. The US dollar is usually the most ideal target. Faced with collective dollar redemption, Russia will naturally face the risk of payment difficulties. According to Shenzhen Overseas Chinese News, a Chinese businessman in Russia said that the channel for converting rubles into US dollars and sending them to China is no longer so smooth, and "the money cannot be remitted." As a new foreign exchange trading medium, Bitcoin has given Russians a new channel for transferring assets, which is why it is not difficult to understand why the trading volume of Bitcoin against rubles has risen rapidly. Let's review the Greek referendum. On July 6, 2015, the results of the Greek referendum showed that 61.3% of the votes were against and 38.7% were in favor. This result shows that the Greeks are unwilling to accept the new solution of the creditors, but it also means that Greece is moving one step closer to leaving the EU. The result of the Greek referendum was "no", the euro fell, Bitcoin /Euro rose sharply, and Bitcoin /USD also rose. Thanos Marinos, founder of the Greek Bitcoin exchange BTCGreece, said that there have been new Bitcoin investors in Greece, and the number has increased by 600% in the past few weeks. The phenomenon of both Bitcoin price and trading volume rising has reappeared. However, Bitcoin's trend has tended to be weak, and its unstable value has once again been highlighted. This time, the demand for Bitcoin as a medium of asset trading is more prominent, and the market demand is obvious. In order to cope with the liquidity crisis, Greece closed banks and stock markets, and some banks imposed restrictions on daily cash withdrawals and ATM transactions. The cash withdrawal amount at the counter is limited to 3,000 euros per day, while the ATM withdrawal limit is 600 euros. Bitcoin is a good choice as a medium of asset trading. BTCGreece has received applications from 300 stores to install Bitcoin ATMs.

Looking back at the above history, the view that Bitcoin has a hedging function is very debatable. For Europeans, the idea that Bitcoin is a tool for asset transfer may be more deeply rooted in people's minds. For this "Brexit" event, holders of pounds and euros have long had psychological expectations that pounds and euros will depreciate significantly. Brexit has become a reality, and the sharp drop in exchange rates will inevitably lead to some currency holders being unable to transfer assets in a timely manner. At this moment, Bitcoin is undoubtedly the most suitable asset transfer or exchange tool. Its efficient, convenient and timely exchange capacity is fully reflected, and the sharp rise in Bitcoin is also reasonable.