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Bitcoin has rallied over 75% since early September. During that same time period, both gold and silver were lower and the U.S. dollar traded in a sideways channel. So why has bitcoin had this dramatic out-performance relative to almost every other asset class?

To answer that question, we have to figure out what bitcoin is. Is it a store of value, a “risk-off” asset, or a fiat currency proxy? CME Group’s Global Head of Equity Index and Alternative Investment Products Tim McCourt told me in our recent conversation that time will tell, and that the strong performance could be more due to reputation. “It’s a pioneer in the cryptocurrency space, it’s innovative with an 11-year track record,” he said.

Bitcoin is up over 300% since bottoming in March. Not coincidentally, March was when the Federal Reserve announced unlimited quantitative easing, essentially signaling that they would go to any length to combat the economic crisis. 

More Cash Benefits Bitcoin

The world’s other central banks have since echoed similar sentiment. When unprecedented amounts of cash are injected into the global system, money tends to show up in strange places. As rallies in equities, gold and silver began to lose some steam in the fall bitcoin became a clear beneficiary. 

Bitcoin also seems to have established a near-insurmountable lead over other cryptocurrencies. Bitcoin currently holds 66% of the total crypto market cap, leaving the remaining 7000+ cryptos to fight over the scraps. Rene Van Kesteren, head of digital markets for Blockfi, noted that some of this is due to reputation and longevity. “Bitcoin has the brand name and has been around the longest,” he said, but also mentioned that other cryptos, like Ethereum, still belong in the conversation. 

Store of Value?

Recently, some legendary money managers like Paul Tudor Jones and Stanley Druckenmiller have made positive comments regarding bitcoin, with the latter saying it “has a lot of attraction as a store of value.”

Why has the need for a “store of value” become so much more pronounced now than in the past? The market does not seem to be comfortable with the level of risks global central banks are taking with their currencies. That lack of confidence has created a need to hedge currency risk. As the story of the pandemic and the corresponding financial crisis unfolds over the coming months, bitcoin could prove to be an interesting gauge of global liquidity and the perceived soundness of fiat currencies. 



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