1 Month of War - A New Safe Haven Is Born?
Is it a good thing that bitcoin ISN’T being held by nation-states?
A month in- where are we at?
As last week's article more thoroughly laid out, we're currently in the midst of the single-worst energy crisis of not only our lifetimes, but in world history [IEA]. That crisis is coming as the result of a full-blown regional war in the Middle East.
Not knowing anything other than that, one would expect oil (given the fundamentals of the situation) would be expected to be in the $150 area and neutral reserve assets like gold should be strong, the stock market to be down massively and Bitcoin, not-yet widely adopted as a neutral reserve asset, would likely be quite weak given its high beta to stocks.
But that's not what we've seen
Gold, arguably what should be the strongest, is actually the weakest. US Treasuries, the multi-decade safe haven, are also down (rates up). Bitcoin, with its usual tendency to be high-beta and risk-on, is actually by far the best-performing asset since the start of the war.
Cross-asset performance since the war in the Middle East started.
Why? What does it mean?
Let's start with gold, as it's probably the most counter-intuitive in terms of performance, and the reason for its sell-off is still not widely understood-
Remember that the Gulf Cooperation Council (GCC) countries are all huge surplus countries. Some current accounts in the GCC are a whopping 20% of GDP. By definition, this means they generally accumulate assets in the form of fx reserves.
A few of the GCC Current Accounts
Another trait of the countries involved in the war, is that their currencies are all pegged to the dollar. This makes sense, given the staggering amount of oil they sell (all priced in dollars). Then, those massive revenues get recycled into US Treasuries (i.e. "Petrodollar").
But their revenues have vanished- gone to nearly zero given the Strait of Hormuz closure, thereby shutting down the inflow of dollars needed to keep their fx pegs. So to keep the peg (some of which appear to be under pressure, already), they have almost certainly been selling gold from their fx reserves.
Various GCC exchange rates with the dollar (pink line designates start of war)
We also know that most of the rest of the world is a net importer of oil, and this energy shock is absolutely devastating to their economies and overall sovereign finances. What do you do if you're an Asian country that's historically run large surpluses, accumulating large amounts of fx reserves in the form of foreign stocks, bonds (mainly UST's) and gold?
Well, oil is priced in dollars, your native currency is weakening AND the price of oil is skyrocketing. You need to raise dollars quickly to fund your country's energy bill, which almost doubled. This is partly why we have seen yields move sharply higher- we know in the 2022 energy crisis, Europe and Asia sold hundreds of billions in Treasury bonds.
It's also very likely why we have seen gold sell off quite sharply, despite its safe haven and ‘risk off' appeal.
Bitcoin Emerges
So, while stocks are logically selling off on the back of the worst energy crisis in history, Treasuries are selling off on a combination of inflation fears and foreign selling, and gold is selling off due to the dynamics outlined above…
Bitcoin emerges with an absolutely crushing outperformance, outperforming gold by an enormous +14%.
While the Bitcoin/USD prices may not indicate this strength, as Bitcoin has largely been range-bound, this degree of outperformance is incredibly significant. This also illustrates the potential trade-offs for wider bitcoin adoption, especially on the sovereign level- countries need energy.
They don't need bitcoin, gold, US treasuries or equities.
Right now, it's likely the lack of sovereign adoption that explains bitcoin's outperformance.
It should also be mentioned that there are now reports that Iran is charging a toll for ships to be allowed through the Strait of Hormuz, and that these tolls are being paid in stablecoins and bitcoin. This could very well be the first major example of Bitcoin becoming used at the sovereign level (on a significant level) and helping support Bitcoin's price here.
("Bitcoin is money for your enemies")
Could this be the breakout moment?
Thanks for reading! Catch you in the next one!
Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.