Bitcoin’s crash to $8,000 levels has sparked fears that the asset is not the ‘safe haven’ it was once believed to be
The last few days have seen turmoil in the world’s markets. Oil fell by 24 percent yesterday, the worst day since 1991, according to CNBC. In addition, nearly £125 billion was lost from the FTSE 100, leading some to fear that we are on the brink of the next financial crisis.
Bitcoin was launched in 2009 in the aftermath of the 2008 global financial crisis. Satoshi Nakamoto, the moniker used by the creator of Bitcoin, invented the cryptocurrency as a response to the reckless lending from banks that led to the housing market collapsing.
Bitcoin offers a way to store and transfer capital safety, cheaply and, most crucially, on a decentralised platform –shielding assets from third-party interference. Some proponents claim that in the next financial crisis, Bitcoin will be the safe haven that investors can rely on.
It’s a nice idea, but how valid is the claim?
Bitcoin can be argued to be an insulated asset; its price is not tied to company performance like the FTSE, nor is it necessary, like oil, for the day-to-day running of modern economies.
Instead, Bitcoin’s value is best compared to commodities like gold, which until now has been seen as the de facto ‘safe’ asset to hold. However, gold have also suffered in times of economic downturn. In the case of 2008, gold fell sharply along with other assets, but by the end of the year had recovered and ended the year on a five percent gain, one of the few markets to end the year in the green.
Bitcoin’s recent dip, however, has shattered the haven idea for some experts. John Bollinger, the technical analyst who invented Bollinger Bands, a trading indicator that measures volatility (very useful for trading cryptocurrencies) said as much in a tweet yesterday:
“Bitcoin fall victim to the COVID-19 panic. I truly did not see that coming, I thought it might act as a safe haven asset. $BTCUSD”
Bollinger attributes the fall in Bitcoin with coronavirus panic, however, in a story published by Coinlist yesterday, the truth is far more complex, with a number of factors creating fear for traders of Bitcoin in combination for virus fears.
With this in mind, one could argue that Bitcoin’s recent dip is to be expected. Markets are currently extremely fearful due to the crash brought on by slide in productivity thanks to the coronavirus. It is only natural, surely, that some of this fear is also having an impact on the crypto markets too, safe haven or not. One look at the Crypto Fear & Greed Index shows that the crypto markets are actually very fearful right now. In the macro sense, Bitcoin’s ability to offer investors a safe haven is yet to be seen.