Is Bitcoin a Safe Haven?
No, but it will be
Last week, affected by the spread of the epidemic, panic had increased among the investment market, and as a result, the global stock and oil markets fell sharply. The three major U.S. stock indexes (Nasdaq, Dow Jones, S&P 500) have dropped more than 3%; European and Asia-Pacific stock markets also have suffered great plummet; and gold price was close to $1,700 / ounce. Bitcoin, on the contrary, showed no signs of a safe haven as expected.
Bitcoin has gradually emerged from the declining shadow since last month, rising 5.11%, and other mainstream cryptocurrencies also in good performance.
Main crypto prices of last week from coinbase.com
Is Bitcoin a safe haven or not?
Bitcoin is a Risky Asset, not a Safe-Haven Asset
Let’s take a look at what happened before.
In February, the Federal Reserve cut rates and led to a financial market earthquake. Bitcoin did not perform as expected; instead, it fell sharply with the US stocks.
On Jan. 8th, 2020, after the US-Iraq conflict, BTC’s price rose with that of gold. The gold price exceeded $1600 /ounce, and Bitcoin hit a new high in 2020, surpassing $8,400.
In August 2019, the U.S. Treasury interest rates went upside down, and bitcoin plummets with it.
Bitcoin tripled in the first half of 2019 and fell by nearly 50% in the second half of the year.
Since the conflict between the United States and Iran on August 4, 2018, Bitcoin has experienced plenty of surges and plunges. However, the prices of traditional safe-haven assets such as gold, Japanese Yen, and Swiss Francs are generally stable and upward.
Although short-term fluctuations can’t prove much, compared to gold with thousands of years of development. Bitcoin’s hedging properties have not been fully established, or the consensus of Bitcoin has not yet been recognized by most investors in the world.
In addition, the volume of the cryptocurrency market is limited and not accepted by most mainstream financial institutions. The entire cryptocurrency market cap is only $200 billion, which is very small as to traditional financial markets.
After hundreds of years of development, the traditional safe-havens have various ecosystems, mature regulatory systems, plus complete trading and circulation mechanisms. In the 11 years since the birth of Bitcoin, the supporting infrastructures, trading, and regulatory mechanisms are still changing. The large bitcoin trading markets have an extremely lack of regulation. Market manipulation and fraud happens one after another.
Bitcoin Promises to be “Digital Gold”
One of the original intentions of Satoshi Nakamoto designing Bitcoin is to use it as a safe haven, for store of value in countries with economic collapse.
Venezuelan bolivar’s long-term hyperinflation has left most citizens there in extreme poverty, and more and more people are interested in cryptocurrencies. According to Bloomberg, each household in Caracas (Venezuela’s capital) has at least a secret mining equipment. In February 2018, a virtual currency issued by the country, “Petro”, was introduced to evading international sanctions against the Venezuelan regime.
Venezuela’s inflation rate was as high as 9,585.5%
Bitcoin is also an excellent scarce asset. The design of its monetary policy, cross-border property, permissionless, peer-to-peer, electronic portable and other characteristics have shown its excellency; the scarcity lies in its fixed total amount and deflationary model.
Bitcoin can hedge currency crises in certain countries whose situation is still controllable. Therefore, under the conditions of gentle inflation or controllable crisis, Bitcoin’s hedging properties will become stronger and stronger compared to other assets.
In a nutshell, Bitcoin cannot be called a safe-haven asset because of its high volatility and limited market size. Instead, it’s a typical liquidity risk asset. However, in some cases, it can be used as a relatively safe-haven investment option. Bitcoin and other cryptocurrencies are still newborns. As more and more people start to build trust in Bitcoin, it may have an opportunity to become the true digital gold in the future.
