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Bitcoin on the rise as “Grexit” fears mount

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Since the start of the month, bitcoin has surged from $223 dollars to just over $250 dollars, having peaked at $257. This marks one of the best runs in recent memory and appears to have been spurred by increasing worries over a Greek exit, or “Grexit” as it’s sometimes called.

Greece’s central bank has warned Greece that it could literally be thrown out of both the Eurozone and the European Union if it does not reach agreements with its creditors quickly. This marks the first time the central bank has released such a dire outlook, highlighting the increasing gravity of the situation.

Greek has only two weeks left to raise 1.6 billion euro to make an IMF payment. As of right now, the Greek government lacks the cash and is trying to raise another round of loans in exchange for more concessions and reforms.

Talks, however, have not been going well so far with both the Greek government and its creditors refusing to budge on key issues.

Greece has stated that its public pensions, which amount to a whopping 16 percent of the country’s GDP, are not on the negotiating table. Greece’s creditors, however, have been insistent that Greece should cut pensions by at least 1 percent of its GDP. Creditors have identified early retirement rather than individual pensions as their target.

Creditors are also looking to increase Greece’s VAT tax, specifically on electricity, though other items for tax increases are also being considered. The Greek government has said that it will not raise taxes on either electricity or medicines.

With time quickly running out and both sides remaining so far apart in terms of their expectations, the risk of a Greek exit from the Eurozone and potentially even European Union is becoming more likely with each passing day.

While there is still time for an agreement to be reached, unless a breakthrough is made, Greece may find itself defaulting on its loans.

If so, financial markets could be hit by a wave of instability. European markets would likely bear the brunt of the burden, but owing to the increasingly entanglement of global financial markets, no country will be safe.

The United Kingdom has publicly announced that it is already preparing for a “Grexit”, though most other central banks are remaining mum. Either way, investors have been growing increasingly wary of financial instability, and global markets have already been hit by some turbulence.

Could bitcoin emerge as the ultimate “safe haven” currency?

In the 2008 financial crisis the U.S. dollar became a safe haven currency, with investors from around the world pulling their money out of stocks, commodities, and foreign currencies to park their wealth in American dollars. The American dollar has long be the de facto safe haven currency due to the size and relative stability of the U.S. economy.

Now, bitcoin may emerge as an alternative safe haven currency, as is evident by the digital currency’s recent rise. As bitcoin is tied to no specific country or commodity, it will not be as prone to any economic weaknesses in any given country, or a downturn in market prices for a commodity.

The lack of any central authority also means that bitcoin can’t be mismanaged by a central bank and won’t be as prone to “human error.”

The currency’s independent and non-aligned status could make it a great safe haven currency. Add in that the currency is regulated by the wider community and is a peer-to-peer currency and bitcoin looks even more attractive.

These factors help explain why bitcoin has enjoyed such a dramatic rise in recent weeks, easily outpacing the major stock market indices and gains for most commodities.

An international financial analyst and writer. He has consulted for the Malaysian government, various MNC's, and other organisations. He focuses on currencies, commodities, and emerging South East Asian markets.

View all Posts by Brian Booker

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