Here’s why Trump’s win boosted Bitcoin
As Trump’s electoral victory became clear, global markets plunged into volatility.
Dow Jones stock futures dropped by 3.8% in premarket trading, S&P futures by 3% overnight, and Nasdaq futures by almost 5%. All major European indices dropped by 2%, on average. The price of bitcoin, however, surged around 4% to reach highs of $738.33 overnight. The cryptocurrency saw similar gains in June after the Brexit vote, suggesting that investors are increasingly turning to bitcoin in times of political and economic uncertainty.
There are a number of reasons why bitcoin proves attractive in these circumstances:
- It’s an alternative asset. Alternative assets are non-traditional assets — other examples include precious metals and art. They typically do not move in the same direction as the stock market and therefore are popular with investors looking to diversify their portfolios.
- It is a decentralized currency. This means it isn’t affected by any one country’s economic changes or policies. In turn, this can make it particularly attractive in periods of political turmoil when policies affecting national currencies, like interest rates, for example, may be subject to rapid and unexpected change.
We will likely see bitcoin make further gains in the near future as political uncertainty grows across Europe. Populist victories such as Trump’s, in which candidates who position themselves as political outsiders gain power, create a climate of uncertainty that makes bitcoin more attractive.
Populist, protectionist candidates are gaining popularity in the runup to elections in France and Austria, and at the same time, the furor around Brexit is intensifying, meaning that market volatility will only increase going forward. This suggests a major potential opportunity for bitcoin to woo investors looking for less vulnerable investments.
Blockchain technology, which is best known for powering Bitcoin and other cryptocurrencies, is gaining steam among finance firms because of its potential to streamline processes and increase efficiency. The technology could cut costs by up to $20 billion annually by 2022, according to Santander.
That’s because blockchain, which operates as a distributed ledger, has the ability to allow multiple parties to transfer and store sensitive information in a space that’s secure, permanent, anonymous, and easily accessible. That could simplify paper-heavy, expensive, or logistically complicated financial systems, like remittances and cross-border transfer, shareholder management and ownership exchange, and securities trading, to name a few. And outside of finance, governments and the music industry are investigating the technology’s potential to simplify record-keeping.
As a result, venture capital firms and financial institutions alike are pouring investment into finding, developing, and testing blockchain use cases. Over 50 major financial institutions are involved with collaborative blockchain startups, have begun researching the technology in-house, or have helped fund startups with products rooted in blockchain.
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