Bitcoin and gold have, arguably, emerged as a “hedge” against the risks that equity markets around the world are now presenting. In the U.S., the Federal Reserve has lowered interest rates to zero, allowing many to access technically “free” money to eventually purchase equities and pump markets.
With gold and Bitcoin now on the radar of every investor, one firm is allowing traders to capture on the protection that Gold provides; using BTC as a price peg.
Bitcoin as a global hedge
On June 10, BTSE announced the launch of its Bitcoin-priced gold futures product, with the launch coming amidst global turmoil in financial markets. Founder Jonathan Leong tweeted in the regard:
I’m particularly proud of this because we are the first digital asset exchange to launch #bitcoin-priced gold futures.
I dedicated this to Peter Schiff. https://t.co/9SuhWEo3sB
— Jonathan Leong (@BTSEJonathan) June 10, 2020
Headquartered in the British Virgin Islands, BTSE is a multi-currency spot and futures trading platform, promising institutional liquidity and price stability for cryptocurrency traders.
The BTC-priced Gold product allows traders to speculate on the prices of “fine gold” in the London commodities exchange, via a price derivation from Tether Gold (XAUt). All prices are denoted, and settled, in BTC instead of fiat currencies.
Seasoned investors, using the instrument, can potentially protect against equity positions or simply capture the volatility of gold using Bitcoin.
In a statement shared with CryptoSlate, BTSE said Bitcoin has emerged as more than a speculative trading asset this year. The protocol’s anti-inflationary design is similar to gold, with institutional investors, central banks, and high net-worth individuals recognizing Bitcoin’s true value, the firm noted.
BTSE added:
“Investors are constantly asking which is a better hedge against inflation: Geopolitical events of 2020 have led more traders to look towards gold’s long-lasting reliability while seeking new opportunities in alternative stable investments.”
The firm stated such contracts also allow traders to bet on the future prices of Gold and Bitcoin, which are otherwise uncorrelated in terms of price and physical fundamentals.
A colossal shift
It must be noted that traders do not actually get access, or a claim, to physical gold. The instrument is solely tied to the price movements of Tether Gold, an ERC20 token, which mirrors the price of spot gold markets in London.
Financial, economic, and geopolitical, events of 2020 have led to investors shifting to cash or other real-world assets. Famed investors, such as Warren Buffett and Paul Tudor Jones, have moved to cash and Bitcoin respectively to protect against possible inflation.
Some popular Bitcoin traders on Twitter, such as Raoul Pal, are already utilizing BTC and gold in their investment plan:
But here is the beautiful thing….
If I’m right, gold and bitcoin go up.
If I’m wrong and the dollar falls from here, gold and bitcoin go up.
That is why these are such dominant trades. US Dollar is next most dominant, and then bonds to negative rates.#Bitcoin #Gold
— Raoul Pal (@RaoulGMI) May 23, 2020
“For institutional investors chasing returns, they are ultimately looking to construct the optimal portfolio with the highest Sharpe ratio. It only makes sense to include Bitcoin and Gold into their portfolio if it enhances the portfolio Sharpe ratio and increases the diversification effect from an equities-only portfolio.”
Bond markets, as a form of portfolio protection, are failing as interest rates have plunged to zero. As CryptoSlate reported yesterday, a billionaire fund manager is advising both Bitcoin and gold as a hedge against global turmoil in the financial markets.
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