Wednesday, May 22, 2024
Crypto

Bitcoin Gains Traction As ‘Safe Asset’: Allianz’s Chief Economist

In a recent interview with CNBC’s Market Alert, Mohamed A. El-Erian, a highly regarded economist and part-time Chief Economic Advisor at Allianz, discussed the shifting dynamics of safe-haven assets like Bitcoin amidst global turmoil. He highlighted the growing perception of alternative assets like Bitcoin and equities as the “safe asset” in light of diminished confidence in government bonds. El-Erian’s observations come in the wake of the recent Israel-Hamas conflict, during which US Treasury bonds faltered in their traditionally perceived safe-haven status. The article also touches upon El-Erian’s past involvement with Bitcoin as he previously bought and sold the cryptocurrency, emphasizing the varying perspectives of different types of investors. El-Erian’s remarks add to the ongoing conversation surrounding the role and potential of Bitcoin as a safe asset and its evolving position in the global financial landscape.

Bitcoin Gains Traction As ‘Safe Asset’: Allianz’s Chief Economist

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Bitcoin Is Perceived ‘Safe Asset’

In a recent interview with CNBC’s Market Alert, Mohamed A. El-Erian, a highly regarded economist and part-time Chief Economic Advisor at Allianz, gave his perspective on the shifting dynamics of safe-haven assets like Bitcoin amidst global turmoil. El-Erian stated, “There have been two big puzzles. They show how unsettling the volatility in the US Treasuries have been. One is, you haven’t had it been the safe haven. We haven’t seen the flight to quality, and the flight to safety you would expect, given what is happening in the world.” He then went on to highlight the growing perception of alternative assets like Bitcoin and equities, “The second thing, that is equally counterintuitive is that you have people talking about Bitcoin and equities being the ‘safe asset’ because of that lost confidence in government bonds being the safe asset.”

The Evolution Of El-Erian’s Bitcoin Views

El-Erian’s recent observations aren’t his first on the topic of Bitcoin and crypto. In November 2021, he shared his personal venture into BTC. “I felt compelled to buy it — I really did,” El-Erian confessed to CNBC’s Dan Murphy regarding his decision to buy Bitcoin near its $3,000 dip in 2018. However, his timing to exit the market was premature, selling in late 2020 as Bitcoin approached $19,000, only to watch it skyrocket to heights above $60,000 shortly after.

Describing his viewpoint on different types of Bitcoin investors, El-Erian explained, “There are ‘fundamentalists’ who are in it for the long haul, professional investors looking to diversify their portfolios, and day trading ‘speculators’.” He emphasized that he’d be more comfortable reentering the market once the day-trading speculators are “shaken out.”

At the end of October 2022, El-Erian acknowledged BTC’s disruptive potential. However, the economist has consistently maintained that BTC won’t eclipse the US dollar as a global currency:

“To be clear, I do not think that Bitcoin will become a global currency, I don’t think you will get massive adoption when people say BTC will go to $200,000 or $300,000, they assume massive adoption. You will not get that. But crypto can and should survive as part of the ecosystem for payments and as an asset class.”

In September this year, El-Erian recognized the maturation of the Bitcoin and crypto industry, noting its increasing institutionalization. He commented on CNBC’s “Squawk Box”, “Crypto is settling as part of the ecosystem. People have recognized it’s not the new global currency. People have also realized it’s not going to disappear tomorrow. It’s been institutionalized. If I were a crypto person, this maturation process is a good thing.”

Background: US Treasuries vs. Bitcoin

The backdrop to El-Erian’s perspective on Bitcoin as a safe asset has been shaped by the recent Israel-Hamas conflict, during which US Treasury bonds appeared to falter in their traditionally perceived safe-haven status. The yield on the US 10-year Treasury note rose to 4.9%, indicating a diminished demand for this government bond.

US Treasuries and Safe-Haven Status

US Treasuries have long been considered a safe-haven asset during times of global turmoil. Investors tend to flock to Treasuries as a way to protect their wealth and minimize risks. This perception stems from their backing by the US government and the stability of the US economy. However, recent market observations indicate a shift in this perception.

Bitcoin and Equities as Safe Assets

In contrast to US Treasuries, Bitcoin and equities have gained traction as safe assets in the eyes of some investors. El-Erian’s comments highlight this growing perception. The volatility and uncertainty surrounding US Treasuries have led some investors to consider alternative assets like Bitcoin and equities as a safer option.

Israel-Hamas Conflict and Market Observations

The recent Israel-Hamas conflict served as a catalyst for market observations regarding the perceived safety of different assets. While US Treasuries faced challenges in maintaining their safe-haven status, Bitcoin experienced a surge of more than 20% since the onset of the conflict. This price surge indicates that some investors see Bitcoin as a safer asset during times of geopolitical tension.

Bitcoin’s Surging Price during Middle Eastern Tensions

As tensions rose in the Middle East due to the Israel-Hamas conflict, Bitcoin’s price experienced a notable surge. This surge can be attributed to investors seeking alternative safe-haven assets in light of the perceived volatility and uncertainty surrounding US Treasuries. Bitcoin’s decentralized nature and potential for long-term value appreciation make it an attractive option for some investors during times of global turmoil.

Similar phrasing in ‘flight to quality’ usage

Remarkably, El-Erian uses similar phrasing with “flight to quality” as BlackRock’s CEO Larry Fink did recently when talking about Bitcoin. Whether this has any meaning is debatable, but it is at least an attention grabber. The use of this phrase by prominent figures in the financial industry underscores the growing recognition of Bitcoin as a potential safe asset in turbulent times.

El-Erian’s Personal Venture into Bitcoin

El-Erian’s personal experience with Bitcoin further lends credibility to his views on the cryptocurrency. He bought Bitcoin near its $3,000 dip in 2018, highlighting his belief in its potential. However, he chose to exit the market prematurely, selling in late 2020 before witnessing Bitcoin’s subsequent rise to heights above $60,000. Despite this missed opportunity, El-Erian remains cautiously optimistic about the future of Bitcoin and its role as an asset class.

Current Bitcoin Price

At the time of writing, Bitcoin is trading at $35,072. This price reflects the ongoing volatility and unpredictability of the cryptocurrency market. Despite its price fluctuations, Bitcoin continues to attract attention as both a potential safe asset and a speculative investment opportunity. As the market matures and institutionalization increases, it will be interesting to see how Bitcoin’s price and perception evolve.

Overall, El-Erian’s perspective on Bitcoin as a safe asset offers valuable insights into the changing dynamics of the global financial landscape. While US Treasuries have traditionally been viewed as the ultimate safe-haven asset, recent market observations suggest a shift in perception. Bitcoin and equities are gaining traction as alternative safe assets, especially during times of geopolitical tension. El-Erian’s personal venture into Bitcoin further adds weight to his views and highlights the potential of cryptocurrencies as part of the financial ecosystem. As the market continues to evolve, it is important to consider the perspectives of influential figures like El-Erian when navigating the world of safe-haven assets.

Source: https://bitcoinist.com/bitcoin-safe-asset-allianz-chief-economist/