Because of the way the world economy runs, the policies in one country can have a dramatic effect on nations’ currencies around the globe. As the Euro tanks, the dollar rallies. This has nothing to do with a strong dollar, but rather a weak Euro.
The same can be said of gold. If the dollar AND the Euro are in question as to their stability, the prices of gold and silver tend to rise. Again, this doesn’t necessarily mean that gold or silver are strong, but that they happen to appear as a safe store of value amid a currency crisis.
Not too long ago the world was introduced to digital currencies, the largest and most notable being Bitcoin. In the past, Bitcoin’s ups and downs seemed to roughly follow those of gold and silver, but in mid-2016 Bitcoin had an apparent decoupling from precious metals.
So why, in the last month has Bitcoin surged over $50, now resting comfortably around $760? Trump and the Itexit have driven the dollar up, and gold down, but Bitcoin is also up. Why? The answer – India.
Just as a currency crisis in Europe helps the dollar, and a dollar crisis helps gold, it appears as though a Rupee (India’s currency) crisis helps Bitcoin. On November 9th, the Indian government demonetized 500 and 1000 Rupee notes, deeming them no longer acceptable as money. The government did this in an effort to curb the counterfeiting of the bills, as well as their use in drug trading and other criminal activities.
While the government did replace the old 500 and 1000 notes with new 500 and 2000 notes, the announcement caused a panic in India, as people worried whether their money would be accepted as legal tender and whether they could easily exchange it for the new money.
Criminals also took this opportunity to launder their money by quickly trading it for Bitcoin, leaving their old no-longer-legal tender out in the Indian economy, and keeping Bitcoin in their pocket (or in their Bitcoin-wallet smart phone app).
Whether people moved to Bitcoin to protect their savings or to hide their criminal activities, this increase in the demand for Bitcoin has driven the price to three year highs.
As governments, including the U.S. government, continue to manipulate their currencies, citizens around the world will seek a hedge against their savings evaporating. In nations where gold and silver are hard to obtain, Bitcoin may offer a way for the even the poor to escape monetary tyranny.