Is Bitcoin really a new ‘safe haven’ asset?.

 

Over the last few years, we have seen many people say that Bitcoin is the new gold, or digital gold.

While fiat currencies like USD and EUR are inflationary since the national governments which govern them issue notes on a whim, digital cryptocurrencies like Bitcoin and Ethereum are pre-programmed to be deflationary and note issuance is automated and managed by computers which can’t be interfered with by humans once the network is started up.

As such, while the value of USD has steadily fallen 2-3% per year since 1976 when it was decoupled from gold, the value of BTC has skyrocketed from less than 1 cent to over $10,000 USD per coin in the last 10 years since its inception.

It’s fair to say that Bitcoin is a safe haven from the collapse of global government-managed currencies, but it’s also fair to say that it’s so volatile that it’s hard to be considered a safe haven asset.

So, in the end, everyone should reach and do their own diligence before deciding whether investing in cryptocurrencies like Bitcoin are worth it for you, and no matter your decision, make sure to diversify your portfolios to diversify risk.

Crypto can be a safe haven asset. Don’t many people even call it “digital gold”? With the recent trade tensions and
countries experiencing hyperinflation, cryptocurrencies are becoming more
and more appealing as a safe-haven asset. People are realizing  opportunities in the cryptocurrency space and beside bitcoin, you can also store value in so-called Stablecoins like Tether where the volatility is more limited.

There are many bitcoin market places, one of the notable one’s like CoinMarketCap, paxful etc. Artur Schaback is the COO and co-founder of Paxful, stated “paxful is one of the world’s leading peer-to-peer bitcoin marketplaces,Paxful offers an easy way for users to buy and sell bitcoins”. Nina Paragoso.

I don’t believe Bitcoin is a safe haven asset for a very simple reason. If the world really starts to go south, what are you going to do with your Bitcoin? Gold has been a safe haven for thousands of years. The US Dollar is the global reserve country and much more liquid than gold. It’s still difficult to transact with Bitcoin, store it securely and even cash it out.

We also saw evidence of this in December when global markets were cratering
– Bitcoin did too. It’s just not human nature to panic and turn to an unproven new type of currency. Maybe after the issues above are resolved but for now, there are no signs Bitcoin is a safe haven asset.

On another opinion, some believe that Bitcoin has the potential to be a new safe haven asset, but it’s too early to know if it will reach that point.

The big reason I can’t say that Bitcoin is now a safe haven asset is because it’s still too volatile. For example, and per CoinMarketCap, it was priced at around $600 USD in September of 2016, peaked at about $20,000 in December of 2017, fell to around $3,200 in December of 2018, and is now priced a bit below $10,000.

Now certainly, if I lived in, say, Venezuela, I’d much rather have Bitcoin than Bolívares. So, it has probably surpassed a few national currencies in terms of stability and as a store of value. Still, in my view, it needs to be far more stable and time-tested in order to qualify as a new safe haven.

1We have seen evidence that people living under oppressive regimes and
economically unstable countries view Bitcoin as a safe haven asset.

Take for instance, Turkey. In the beginning of 2018, the country’s currency crashed by over 20 per cent within a few hours. During this period, Turkey’s largest
exchange, Koinim, saw a 63 per cent
<https://www.forbes.com/sites/billybambrough/2018/08/13/bitcoin-investors-eye-turkey-as-lira-plummets-20/>
increase in Bitcoin trading volume while the ‘BTCTurk’ and ‘Paribu’ exchanges
reported a rise in trading volume by respectively 35 per cent and 100 per
cent. The increased demand pushed the price of bitcoin in Turkey up to
$7000 — over $500 higher than the global average bitcoin price.

In Argentina, the South American country with the second highest
inflation rate, after Venezuela, Bitcoin trades at a premium and volumes
accelerating as economic uncertainty escalates. If an Argentinian had
bought Bitcoin at the highest point of the biggest bubble in history, in
2017, he would have been better off than leaving his money in his
Argentinian bank account. So tell me again how Bitcoin is a horrible store
of value. (Source
<https://twitter.com/josusanmartin/status/1130175860051521536?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1130175860051521536&ref_url=https%3A%2F%2Fbitnewstoday.com%2Fnews%2Fcrisis-in-argentina-investors-massively-convert-pesos-to-bitcoins%2F>

In 2018, Venezuelans railed against the increasing measures of oppression
by the State by converting their bolivar to cryptocurrency (source
<https://www.businessinsider.nl/dash-cryptocurrency-surges-in-venezuela-as-hyperinflation-explodes-2018-8/?international=true&r=UK>

In Zimbabwe, the use of cryptocurrencies has grown exponentially as the government sent the country down a spiral of hyperinflation and started restricting the flow of cash into and out of the state’s borders. At times, bitcoin was trading at an 85 per cent premium<https://cointelegraph.com/news/bitcoin-trading-at-85-premium-in-zimbabwe-priced-at-7200>
in the country.

In South Africa, interest in Bitcoin often coincides with socio-political
shocks
<https://www.thenational.ae/business/volatile-fiat-drives-bitcoin-adoption-in-africa-1.707722>
such as when former Finance Minister, Pravin Gordhan was sacked in a
controversial reshuffle of parliament (March 2017), and the nation’s debt
was downgraded to junk status (November 2017).

It is yet to be seen if people in Western, ‘first world’ economies turn to
Bitcoin as haven in times of instability. The UK’s response to the outcome
of the Brexit vote in 2016 could be an indicator: In the 24 hours
following the results being made public, bitcoin investors enjoyed a 7%
rally in price, once again highlighting the undeniable correlation between
economic instability and bitcoin value.

Risk warning: The prices of virtual goods and products, like real goods and
products, constantly fluctuate over time. Any currency, virtual or
otherwise, could be subject to large swings in value and at any time might  become worthless. As such, the value of your holding may increase or decrease over time. With any type of market-based trading, buying or
selling, there is an inherent risk that losses will occur. It follows that you should not hold money you cannot afford to lose in bitcoin or alternative crypto currencies.

Although bitcoin has been present for more than a decade, it has been
through a lot of fluctuations. However, the average price in the past couple of years has been around 10K which can be a good indicator of a standard for bitcoin. If this trend continues in the next few years, we can
expect it to become one of the new safe havens.

READ MORE:

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VanEck, SolidX withdraw the proposal of Bitcoin ETF from SEC review.

Nigeria’s capital markets regulator is creating framework for Cryptocurrency regulation.

Another Bitcoin Cloud Mining Scam to Avoid: – AWS Mining Review.

 

Credits: Igor Mitic, Name: Liz Lou, Miguel, James McGrath

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