CoinShares’ Meltem Demirors on How Bitcoin Can Become a Risk-Off Asset

Bitcoin

In the past couple of weeks, geopolitical tension in Europe escalated so much that it transitioned to an invasion of a sovereign country and a flat-out war that’s currently taking place on its territory.

We have seen most Western countries sanctioning Russia for its invasion of Ukraine by whatever means they had at their disposal, including expulsion from SWIFT, removal of companies from the country, breaking up of all kinds economic ties, etc. Cryptocurrency exchanges have also been told to stop serving Russian customers.

Amid this tumultuous economic and geopolitical climate, Bitcoin and cryptocurrencies, in general, were touted as an alternative asset that’s apolitical and uncorrelated to traditional finance. Chipping in on the matter was Meltem Demirors, the Chief Strategy Officer at CoinShares.

Assets at risk vs. at risk and current environment

Before we dive into what Ms. Demirors had to say, it is worth explaining what risky and risky assets are.

Risk-on and risk-off assets have much to do with the notion of risk sentiment or, in other words, what’s the current risk tolerance of investors in the existing economic paradigm. During risk-on situations, investors tend to have a high appetite for risk and bid up the prices of certain assets in the market.

In contrast, in risk averse situations, they become more risk averse and tend to sell certain assets.

Now, what assets they sell depends on how risky they believe holding these assets is. Therefore, a risk-on asset would be one that is riskier compared to a risk-off asset. While holding it would normally carry the promise of a better return, holding it during economic turmoil can also result in a more significant downside.

Now that this is clear, it should be noted that the current economic climate can be considered uncertain, to say the least. The world is emerging from a global pandemic, the United States is considering rate hikes to combat rising inflation, businesses are facing new paradigms, and to top it off, a literal war is unfolding in Europe.

So, where does this leave Bitcoin?

Bitcoin will become a risky asset

Talk to Bloomberg CryptoCoinShares Chief Strategy Officer – Meltem Demirors – summed up the past few weeks with what is happening around the world, not limiting the challenges solely to the war in Ukraine.

I think that it’s been a very interesting few weeks. Not only do we have this conflict happening in Western and Eastern Europe but we also recently had the Canadian truckers and their access to the banking system getting cut off. […] It was an instance where there was a lot of conversation around Bitcoin and cryptocurrency.

She argued that there is a growing global awareness that “for the first time, citizens, who are truly the victims of wars waged by superpowers, have a choice.”

Bitcoin and cryptocurrencies are non-political global money, and again, we’re not only seeing increasing trading activity in Ukraine in Russia (see report) but also a lot of the trading activity coming from the US as people are looking at what’s unfolding around the world. Maybe this is the start of Bitcoin no longer being a risk-on asset, but potentially, over time, becoming a risk-off asset.

Naturally, Demirors also explained that a few weeks is certainly not enough to definitively prove this relationship, but she hopes the data from the next few months and years will help establish the thesis.

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