[Global Focus] The Time of De-dollarization... Investors Glancing at Bitcoin

[New Currency War] ⑤ Bitcoin
Plunged 50% Due to Monetary Tightening, Then Soared 50%... Market Also Favorable Due to Decentralization Advantages
Correlation with Gold Hits 57%, Highest in 2 Years
"Uptrend Will End" Warning... Government Regulations Worldwide Pose Risks

"If the U.S. government defaults on its debt, I will invest in Bitcoin."

Before the U.S. debt ceiling negotiation bill passes Congress this month, the U.S. economic media outlet Business Insider released an interesting survey result. It showed that 11.3% of respondents said they would buy the virtual asset Bitcoin if a default became a reality due to a failure in debt ceiling negotiations, surpassing the dollar at 10.2%. The dollar, considered a representative safe-haven asset, is facing threats to its strong status amid China's yuan rise, U.S. banking crises, and default concerns. Amid this de-dollarization movement, some investors are focusing on virtual assets as alternative investment destinations. They are paying close attention to the possibility that Bitcoin, which has a decentralized nature, could establish itself as an asset replacing the dollar like gold. On the other hand, some warn that the virtual asset investment craze could end up as a bubble-filled illusion, similar to the 17th-century Dutch tulip mania.

Banking Crisis and De-dollarization Boost Value... "Bitcoin Will Rise Further"

According to the financial investment industry on the 13th, Bitcoin is trading around $25,800. It has surged more than 50% this year. At the beginning of last year, Bitcoin was around $47,700, but due to the Federal Reserve's (Fed) aggressive monetary tightening, it plummeted to about $16,500 by the end of the year, a drop of 65% annually. However, it has reversed to an upward trend this year, increasing its value. The banking crisis triggered by the Silicon Valley Bank (SVB) collapse and the spread of U.S. default concerns have increased investment demand for decentralized assets as alternatives to the traditional financial system, pushing Bitcoin prices higher.

Meanwhile, the global reserve currency, the dollar, is facing all-around challenges centered on China. This year, China agreed to settle oil trade payments with Saudi Arabia in yuan and decided to use yuan for trade payments with Brazil, Argentina, and others. While the status of the centralized dollar is shaking, investment demand for Bitcoin, a decentralized store of value with high scarcity, has expanded further. Some are even moving to use Bitcoin as a payment method. After being excluded from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment network due to its invasion of Ukraine, Russia considered paying for oil in Bitcoin. Standard Chartered (SC) Bank stated, "The stress experienced by traditional financial institutions is acting favorably for Bitcoin," and evaluated that "Bitcoin is proving its value as a decentralized and scarce digital asset."

Some global banks and research institutes have issued optimistic forecasts that Bitcoin prices will soar. SC Bank expects Bitcoin to exceed $100,000 by 2024. Bloomberg Intelligence (BI), an economic research institute under Bloomberg, also predicts Bitcoin will surpass $100,000 and could reach up to $200,000 depending on circumstances. BI estimates that if Bitcoin absorbs just 1% of the global bond market funds, its price could rise to $185,000.

'Digital Gold' Linked to Gold... Warnings That the Uptrend Will End

Bitcoin's correlation with gold prices, a safe-haven asset that serves as a dollar substitute, is also gradually increasing. According to market information provider Kaiko, the correlation between Bitcoin and gold reached 57% as of April this year, the highest in two years. Especially after the banking crisis triggered by the SVB collapse in March, the correlation significantly increased. This is why analyses are beginning to suggest that Bitcoin is expanding its influence as a dollar hedge asset known as "digital gold." On the other hand, the correlation coefficient between Bitcoin and the dollar dropped from 0.9 at the end of last year to -0.9 in early May this year, indicating reduced correlation.

Bitcoin, which was previously considered a risky asset, is now linked to gold prices, a dollar substitute, leading some market participants to paradoxically view Bitcoin as a safe-haven asset. Accordingly, JP Morgan recently analyzed that if Bitcoin is recognized as having the same level of safe-haven status as gold, its price could rise to $45,000. JP Morgan stated, "Based on the recent upward trend in gold prices, Bitcoin should be trading at a higher price than it is now." However, they pointed out the limitation that while gold has served as a store of value for thousands of years, Bitcoin has only been a store of value for 14 years.

On the other hand, there are considerable views that Bitcoin will not become a safe-haven asset replacing the dollar like gold. Even if challenges to dollar hegemony continue, it is expected that Bitcoin will find it difficult to rise alongside gold prices.

Senior Research Fellow Kwon Se-hwan of KB Management Research Institute said, "Except for the characteristic of scarcity, gold and Bitcoin have almost no common denominators," adding, "Virtual assets have higher price volatility risks compared to traditional finance and face uncertain regulatory risks. There is not even a social consensus that they are investment assets." Questions about Bitcoin's investment value remain widespread, and its volatility is too high to be considered a stable investment asset. In the first quarter of this year alone, while gold rose 8%, Bitcoin surged by a whopping 71%.

Regulation of virtual assets by governments worldwide is considered the biggest risk for Bitcoin. The U.S. Securities and Exchange Commission (SEC) has recently strengthened regulations by filing lawsuits against virtual asset exchanges such as Binance and Coinbase this month. The SEC considers virtual assets as securities and insists that securities laws should apply. If virtual assets are recognized as securities, all operators must obtain licenses, inevitably affecting future business. The European Central Bank (ECB) and the International Monetary Fund (IMF) have also stated the need to strengthen virtual asset regulations and capital management for issuing companies. As international regulatory movements targeting the previously gray-area virtual asset industry intensify, there are calls for more cautious investment.

Senior Research Fellow Kwon said, "Since the spread of COVID-19, Bitcoin has shown a synchronized decline with global stock markets whenever negative macroeconomic signals occur," adding, "The virtual asset market still carries higher price volatility risks compared to traditional finance and faces uncertain regulatory risks. It is more realistic to recognize Bitcoin as a high-risk investment product of a different nature from existing capital markets and to discuss investment from the perspective of portfolio asset diversification."