Since its arrival in the international stock market, Bitcoin has witnessed an exponential growth in a short amount of time. Even recently, this was seen on the day the global stock markets plunged over concerns over the coronavirus- Bitcoin gained around 5.6 percent on the same day. This only serves to prove the fact that Bitcoin has emerged as one of the safest and most secure cryptocurrency investments in recent years.
Bitcoin trading opportunities are on the rise by the moment, but the claims that Bitcoin is a digital parallel of gold may be unfounded as in the fourth quarter of 2019, Bitcoin’s price fell from more than $12,000 in the summer to $7,000. On the other hand, gold stayed firm at around 20 percent.
What is a safe haven asset?
Safe-haven assets are those whose prices rise as soon as the stock markets crash because of an emergency. Amidst a crisis, investors withdraw money from their original investments and store them in ‘safe’ assets (precious metals, gold) for a better and more secure value.
Why is Bitcoin a safe asset?
Amidst rising tensions of the coronavirus and the assassination of an Iranian official, the value of Bitcoin increased by 5 percent. The value of the Bitcoin also rose once again when Iran fought back and answered to the US the next day. Interestingly, the value of the cryptocurrency decreased as soon as the rising tensions between the two countries were dissipated.
This has only confirmed Bitcoin’s mimesis of gold’s stock market properties. This has led a lot of people to describe Bitcoin as a digital fold. Inflation is on the rise during war situations as nations need to borrow money for the various funding of the war. In these situations, flat money does not hold as much value as money in kind, such as gold band Bitcoins. A simple example can be seen in the rise of the value of Bitcoin after the conflict between the US and Iran, which proves that Bitcoin is slowly becoming a safe haven and a store of assets. In fact, even amidst the general uncertainty and discomfort rising about the coronavirus issue affecting the stock market negatively, the value of Bitcoin increased by 30 percent, even more than gold.
Can Bitcoin be termed as a safe haven asset yet?
The simple answer to this would be no. As of now, Bitcoin has not emerged as a safe haven asset. Bitcoin has not been integrated into the system of traditional safe-haven investment because it is a relatively younger development, as compared to something as old and dependable as gold. Bitcoin was created in 2008 following the financial crisis, but its performance has not been tested in a financial crisis situation since then.
Even without any explicit association with another marker proper, Bitcoin has been behaving as a safe haven asset for long now. The conflict between the US and Iran saw a rise in the value of this cryptocurrency, and this only leaves it to be asked whether the cryptocurrency will be able to fare similarly in another potential financial crisis.
It should be made clear that gold and Bitcoin are not related in any way. They are complementary to each other, and investors should make it a point to have a hold on both just in case of any crisis situation. Bitcoin is definitely a good hedging asset, because of the unique nature of its financial supply. Gold is a more traditional version of the same, and it has existed through centuries as a successful hedge that protects the money of common people against their government’s poor financial policies especially in times of uncertainty.
This idea is not as universal as it would seem since there are quite a few people who have voiced their disagreement on the subject. They hold up the example of Bitcoin’s recent drop in value amidst tense situations in order to justify their claim. But, there are plenty of examples that definitely point towards Bitcoin being a step in the right direction. Plenty of stock market experts see the many prospects of Bitcoin as an advantage and consider these minor fluctuations as those that happen perchance. The cryptocurrency has definitely shown more scope for profit than for loss, and that is why it is growing in importance over the days. Very soon it will become a mainstream safe-haven asset and will be used extensively by investors all over the globe.