Bitcoin Rally Is an Investment Hedge Against Global Risk, Tom Lee Argues

Neil Dennis

Bitcoin's latest rally is likely a hedge against global risks as the economic and geopolitical environment darkens, said Fundstrat's Tom Lee on Tuesday.

Speaking on CNBC's Fast Money show, the outspoken bitcoin bull said that the cryptocurrency had correlated negatively with the dollar:

[A] weak dollar has been good for bitcoin. And it's been really correlated to risk markets. This year it's steered away from the dollar because dollar's been strong, bitcoin's been up, which is a real breakage. It's gone negative on correlation to the equity markets.

Risk Off

While many global equity markets have tested new highs this year, the global risk backdrop has darkened in the past few weeks as China and US relations worsen under the pressure of a turbulent trade war.

Since the end of July the FTSE All World Index is down more than 5%. Equity markets fell heavily on Monday after President Donald Trump labelled China as a currency manipulator - allowing the renminbi to devalue to give the country an unfair trade advantage.

Lee said:

I think that makes crypto an authentic institutional source of diversification. I think its going to help propel it to new highs.

Flight to Safety

Nigel Green, chief executive of and founder of financial advisory firm deVere Group agreed as bitcoin jumped 10% on Monday after global stocks were rocked by the rising China-US tensions. He said:

This is not a coincidence. It reveals that consensus is growing that Bitcoin is becoming a flight-to-safety asset during times of market uncertainty.

Green added that bitcoin was realising its reputation as a "form of digital gold" - sharing characteristics with the precious metal, such as its scarcity and store of value.

On top of the trade war, UK and European investors are also troubled by the uncertainty surrounding Britain's withdrawal from the European Union. Green said:

The legitimate risks posed by the continuing trade dispute, China’s currency devaluation and other geopolitical issues, such as Brexit and its far-reaching associated challenges, will lead an increasing number of institutional and retail investors to diversify their portfolios and hedge against those risks by investing in crypto assets.

Price Predictions

Green said he believes that the price of bitcoin could hit $15,000 "within weeks". Tom Lee, meanwhile, said back in mid-June that he expected bitcoin to hit $40,000 before the end of the year.

The bitcoin price rose from levels below the $4,000 mark at the turn of the year, to hit an 18-month high of $13,930 on June 26. 

In July, however, it fell back below $9,000 as hopes rose that some common ground between China and the US could be found at that month's G20 leaders summit. However, this month's ratcheting-up in tensions has seen the price rally again, and on Tuesday the price was back up to around $11,800.