Bitcoin has the potential to become a hedge fund: Taking stock of the world's three major financial crises

Grayscale Investments has released a report stating the potential of Bitcoin as a hedge fund.

Bitcoin possesses the characteristics of transparency, fixed total supply, and global liquidity, and should be considered an important component of a long-term investment portfolio. A report points out that Bitcoin has unique properties that set it apart from any other asset, making it perform well during normal economic cycles and market failures.

The report reviews five recent economic shocks, where digital assets outperformed other investment targets. Including Greece, Brexit, the structural devaluation of the Chinese Renminbi, and the trade war led by U.S. President Trump, these economic crises demonstrate that Bitcoin can serve as a hedge for investors during market failures.

Greece and Grexit

In June 2015, Greece faced a €1.5 billion debt repayment to the International Monetary Fund (IMF). Unable to repay, Greece initiated a three-week bank holiday starting on June 28, imposing strict capital controls.

During this freeze period, Bitcoin became one of the means for Greeks to transfer assets, highlighting Bitcoin's resistance to government intervention and its autonomous nature.

Before the resolution of the Grexit crisis on July 13, 2015, Bitcoin had a return rate of 28% over three weeks, while the average return rate for 20 other markets and currencies was -1.7%.

Chinese Renminbi Devaluation

The second case involves the structural devaluation of the Chinese Renminbi by the People's Bank of China and the shift in currency policy from August 2015 to December 2016.

Due to stock market turmoil and concerns about its financial system, the Chinese government lowered the reference rate for "Renminbi against the US dollar" by 1.9%, signaling a shift towards a "market-oriented" approach to stimulate exports and growth.

This currency policy led to the Renminbi facing its largest single-day drop in over 20 years, and a five-month sell-off of global risk assets. Bitcoin was used to hedge against China's liquidity risk because local investors sold off assets to counter currency devaluation.

Since China announced the currency policy, Bitcoin has outperformed major financial commodities and currencies, with a cumulative return rate of 53.6%, compared to the average return rate of traditional assets at -10.1%.

UK Brexit

On June 24, 2016, the UK held a referendum on Brexit, and the result in favor of "Leave" caused a global stock and forex market crash, evaporating a record $3 trillion in global stock market value.

The report indicates that during the first day of global sell-off, Bitcoin was the best-performing asset with a return rate of 7.1%, while the average return rate for other currencies was -2.1%.

Furthermore, considering significant changes in global monetary, fiscal, and trade policies such as the US-China trade war, the report suggests that officials and decision-makers worldwide may find economic management increasingly challenging.

• Analytical firm Delphi Digital calls Bitcoin the "king of assets."
• Turkey's inflation rate reaches 25.24%, driving investors towards Bitcoin.

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