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When I started to write on the subject of Bitcoin in these pages around ten months ago, I was determined to cover the subject from a dispassionate trader’s perspective. As a product of forex dealing rooms around the world that was the natural approach for me to what is, after all, just another currency, albeit a somewhat different one. Over the last ten months, though, as my knowledge has expanded the very concept of a trust-less peer-to-peer currency, along with the technology behind it and the possibilities it presents, have turned me into somewhat of an advocate.
When looking at price, however, I try to put that and similar feelings aside. Love of my native country never stopped me selling sterling short when it was going down, for example. That even went so far as to feel no shame for being part of the movement that forced the Bank of England to back away from artificially supporting the currency on the now-infamous "Black Wednesday." At the time I was accused of being unpatriotic and even immoral, of placing the love of money above any principles. There may be some truth to that, but it was what we had been taught. Trading based on ideology or beliefs is a sure path to the unemployment line, and anyway, all we really did was to hasten the inevitable.
When I write positively about Bitcoin, whether in terms of price or in a broader way, I am often accused of the opposite; placing my belief in a concept above a rational analysis of a trade. I am neither naïve nor idealistic enough to believe that Bitcoin will replace Government-issued currency completely, or at least certainly not in the foreseeable future, but the broader acceptance of it (or another, similar digital currency) looks like a certainty once you understand what it is.
That sense of the inevitable long term acceptance of Bitcoin leads to a somewhat biased long term view, admittedly, but in the forex market I was taught to divorce my long term view of, and feeling about, a currency from the short term search for a trading opportunity. Occasionally, though, the reasons that you support a concept in the long term form part of the reason that a short term trade looks attractive. That is the case now with Bitcoin’s reaction to events in Greece.
Figure 1: 2 Month chart BTC/EUR. Source: bitcoincharts.com
The fact that BTC/EUR has jumped over 25 percent in the last two weeks, just as the Greek crisis deepens, is no accident. It is simply the logical result of what many around the world are beginning to realize. When conventional currencies exhibit the flaws that are inherent in their nature, switching from one of them to another just isn’t enough. An alternative store of value starts to look like a good idea in that situation, no matter how volatile or risky its past may be.
In many ways, though, that is an exaggerated fear. I mean, if the worst case scenario does come about and Greece does leave the EU, the relative value of BTC in EUR terms will increase for sure. This surge in BTC/EUR, along with a similar move against the U.S. dollar, however, suggests a view that the exit of Greece’s tiny economy from the shelter of Europe will somehow cause a global financial meltdown. I find that hard to believe.
Moreover, I can see why Greece’s desire to inflate their way out of trouble highlights a basic problem that many have with the current monetary system, and as such makes Bitcoin more appealing in an existential sense. The number of people who both understand that and care enough to act, though, is probably too small to have driven this move. When I take off my advocate’s hat and replace it with my trading headgear, a fairly obvious reason for the jump becomes apparent. For traders, who most likely have caused this move, there is a good chance of the Greek tragedy giving BTC a boost whatever the eventual outcome. Buying BTC at these levels is not a statement about the relative merits of a disinflationary currency, just a trade with a good chance of profit.
If this standoff between the E.U. and Greece is not just standard political brinkmanship and both sides act in a principled but stupid manner until a breakup occurs, the so-called Grexit will create a panic of sorts in the short term. In that case, owning BTC will be a smart position. If, on the other hand, they come to a last minute agreement, it must, by definition, involve the EU effectively printing more money, pushing the relative value of BTC up, making owning BTC a smart position...a true win-win.
Bitcoin’s reaction to the crisis in Greece then, is an interesting thing to observe. Both camps, the ideologically driven long term investors and the short term, “show me the money” traders, can find a reason to buy BTC as a result. It is little wonder, therefore, that BTC has jumped, and further increases in price against major currencies look distinctly possible.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
