Can We Call Bitcoin a Safe Haven Asset?

For the past several weeks we have watched markets crash and burn, well almost, it has been interesting to watch out for the reactions of the crypto commentators who have claimed in the past that bitcoin is a safe haven asset like gold.

If you have been following the bitcoin price over the last week, you may have noticed that it dipped when the markets tumbled, and rose incrementally as other risk assets, i.e. stocks, found some traction. Can we conclude from this that any claims cryptocurrency is a safe haven may now be dismissed? If only it was that easy to make such a ‘written in stone’ comment about cryptocurrencies at any time!

As Charles Bovaird remarks, “the world’s most prominent digital currency suffered some notable losses, falling close to 20% in a matter of days.” Writing on 9th March, he compared this with the Dow Jones Industrial Average, which dropped over 2,000 points on that day, and oil prices, dropped 24% at the same time.

Cryptocurrency enthusiasts might have been forgiven for seeing this as a possible moment in which investors would flock to crypto. Instead, they have been questioning its safety as an investment asset at this time of upheaval in the financial markets, and across society generally.

Everyone is looking for liquidity

The issue right now for so many investors is liquidity. The Covid-19 epidemic has prompted a sell-off of safe haven assets, such as gold. And as Denis Vonokourov at London-based digital asset firm told Bovaird, “because market participants will be forced to adjust their portfolios and deal with margin calls, alternative assets are unlikely to be prioritised.”

Others are confident that the bitcoin sell-off in early March “merely represents a general risk aversion going into a possible economic crunch, and does not necessarily invalidate Bitcoin's safe-haven status.”

At the time of writing on 6th April, bitcoin had broken above $7K. This sudden surge accompanied a sharp rise in traditional market futures on 5th April, according to Cointelegraph. However, it also warns that renewed anxiety about oil prices may see bitcoin’s recent gains reversed.

Yet uncertainty has benefited bitcoin when one considers that on 12th March its price reached a low of $3,700. But the new level may not hold, and it has been interesting following some of the responses on Twitter to a survey by Michael van Poppe (Twitter handle Crypto Michaël) who is a Cointelegraph market analyst. Some comments remark that there is little volume in the market, indicating a bearish rather bullish future.

Others are more positive, pointing to bitcoin’s ability to hedge stock market risks, referring to it as ‘digital gold’. Yet, Cointelegraph reported on 4th April that a study by Klaus Grobys indicated, “Bitcoin performed poorly in hedging this Black Swan event.” Grobys felt this was surprising, he also concluded “While the study shows that gold, indeed, lived up to its expectation to serve as a safe haven in times of troubles, Bitcoin turned out to be a curse rather than “digital gold.” 

As is usually the case with bitcoin, there are persuasive arguments coming from a range of viewpoints, but it would seem that overall bitcoin may not yet be viewed as a safe haven asset, as while it may be looking buoyant today, it could take a nosedive before the week’s end, and that is not the kind of behaviour that investors are looking for when thinking about safety first!