Geopolitical Tensions Drive PAXG to Record High While Questioning Bitcoin's Hedge Value
Summary:
As geopolitical tensions rise in the Middle East, the gold-backed crypto token from Paxos, PAXG, reached a record high, leading to questions about Bitcoin's value as a geopolitical hedge. Bitcoin's price fell significantly as PAXG soared, but PAXG's rise was not sustained. Various analysts noted that Bitcoin's market trends are similar to those observed in previous geopolitical conflicts, suggesting that Bitcoin is potentially not a value-preserving asset in these circumstances. However, despite a recent dip, Bitcoin started its recovery in early trades on Monday, April 15.
As Middle Eastern conflicts escalate, the gold-backed cryptocurrency token from Paxos, PAXG, reached record-breaking levels, casting doubts on Bitcoin's effectiveness as a geopolitical safeguard. CoinGecko data shows that on April 13, Bitcoin's value took a sharp $5,000 drop within hours - from roughly $67,500 to about $62,700 – a decline of 7.5%, while in contrast, the PAXG token soared to $2,855. “Bitcoin, despite its various roles, does not serve as a geopolitical buffer,” noted Bob Elliott, co-founder, and CEO of Unlimited Funds, and a former Bridgewater executive, during an X-post. Following an Iranian drone and missile attack on Israel, tensions within the Middle East only grew worse. Elliott, who was previously in charge of research at Bridgewater Associates, suggested that Bitcoin’s trading performance, which showed a “near-total negative correlation over the past day to PAXG,” provided another solid real-world test this past weekend. He insinuated that Bitcoin's effectiveness as a hedge is deteriorating. PAXG's meteoric rise, however, was short-lived, settling back to its former gold-linked price area of approximately $2,376 at the time of reporting. The commodity had shown steady growth since the beginning of March, corresponding to a 20% rise in the price of the finite yellow metal, which reached a high of $2,400 per ounce last week. Nonetheless, it was observed that Paxos's token's liquidity was quite low, with a $36 million daily trading volume, a stark contrast to other top-tier crypto assets that trade in billions. Glassnode on-chain analyst Checkmatey scoffed at those who noted PAXG’s higher trading volume as a reflection on Bitcoin, writing them off as unserious market commentators. Elliot also noted that Bitcoin’s market trends mirrored those seen following the Hamas attack on Israel on Oct. 7 last year, when it lost value while gold surged. Echoing Elliott, he pointed to the negative correlations which are seemingly growing over time, and referenced the 2022 Russian incursion into Ukraine. He stated that Bitcoin traded haphazardly within a small range before and after the invasion. He confirmed that during February and March of the same year, gold prices shot up by 12%. Analyst Willy Woo also touched on Bitcoin's price circumstances during the Russia-Ukraine war, adding that Bitcoin's recovery usually kicks in within days. The Middle Eastern political unrest culminated in a drop in Bitcoin value. Elliott finally noted that from a geopolitical angle, Bitcoin lacks the characteristics of a value-preserving asset. He proposed that Bitcoin's wider application may tie it more directly to total financial assets, stating that “for geopolitical applications, the notion of Bitcoin as 'digital gold' is undeniably erroneous.” As of the time of this report, following its weekend dip, Bitcoin has already started rebounding and came in at $65,800 in early Monday trades, April 15. News recap: the impending altcoin season, SEC’s focus on Uniswap, and BTC halving updates in the Hodler’s Digest of April 7-13.
Published At
4/15/2024 8:35:00 AM
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