Bitcoin (virtual currency) coins are seen in an illustration picture taken at La Maison du Bitcoin in Paris, France. Photo: Reuters

Unlikely safe havens: war of words over North Korea boosts cryptocurrencies

Some investors are turning to an unlikely safe heaven as the rhetoric between US President Donald Trump and North Korea intensifies.

Bitcoin, ethereum and other digital currencies, among the most volatile assets around, are gaining in part as traditional refuges such as gold and US Treasuries lose some of their lustre.

“We’re seeing investors transferring their funds into cryptocurrencies as they try to diversify their risk in case of a severe downturn in the market,” said Ron Chernesky, chief executive officer of trading platform InvestFeed Inc which is switching from equity trading to cryptocurrencies. “The space has gone from niche to more widely adopted with one of the main draws being that crypto currencies are seen as less correlated with other assets.”

With South Korea caught in the middle of the war of words between the US and North Korea, Koreans are seeking shelter in ethereum. Trading volume jumped to US$2.6 billion on Wednesday, 60 per cent higher than bigger rival bitcoin’s volume that day. Volume has been higher only twice in all of ethereum’s history.

Much of that reflects South Koreans buying the digital asset. The Korean won makes up more than 40 per cent of ethereum trading volume, the highest among currency pairs, according to CoinMarketcap. Ethereum rose 4 per cent on Thursday to US$304, near the highest since June.

A Robocoin kiosk is used to sell bitcoins outside the 500 Startups' Bitcoinference in Mountain View, California. The digital currency is becoming attractive to investors nervous about the harsh rhetoric between the US and North Korea. Photo: AP

Bitcoin crossed the US$3,000 mark this week for the first time and jumped to a record high of US$3,486.73, while ethereum has gained more than 30 per cent in four trading days. The biggest digital currencies had been gaining in the previous weeks, as relief that a split in the bitcoin blockchain, agreement on how to scale the technology and regulatory developments boosted prices.

Investors are going into cryptocurrencies even as bitcoin’s volatility is about 10 times that of gold, as proponents view their independence from any central authority as a safeguard against central bank meddling or government turmoil. It also serves a means to protect savings in countries that have high inflation, a weakening currency or capital controls.

Whether investors will at some point need a refuge from the newfound safe haven of cryptocurrencies still needs to be determined.