A new report reveals that bitcoin is quickly accelerating to become the safe-haven asset of digital currency markets.
Since the advent of bitcoin, following the massive economic crumble in 2008- cryptocurrencies have offered a viable solution to many of the issues the global financial world’s fiat falls prey to.
Or at least that’s what inventor Satoshi Nakamoto proposed. Many believe that Nakamoto endeavored to create a currency that wouldn’t be subject to wildly nilly inflation and quantitative easing that will quickly lead to deflationary devastation on Main Street. A pseudo-anonymous public ledger, that’s fully secure, decentralized, and global. Removing many of the stopgaps that served to create the 2008 financial crisis, to begin with.
Barely a month after COVID-19 took hold of communities across the globe- bitcoin finally had the economic vitality test that it had been missing since its invention. Markets crashed, with prices dropping to closing values the world hadn’t seen in decades. While other markets continue to struggle to get a grip on the bear shadow that still looms, bitcoin markets have resolutely stabilized, if not matured. With many new-user focused exchanges like Bitvavo seeing higher numbers of investors and market values returning to the pre-crisis status. Does this mean that Bitcoin is finally reaching the safe-haven status that has long been suggested?
What is a Safe Haven Asset
This particular timing brings into stark focus how it is that safe-haven assets, like gold, behave, to begin with. As just after the biggest insult to the economy in 2008- when big banks began filing for bankruptcy, gold prices floundered. Crashing alongside the market itself. Which doesn’t much sound like a safe haven, that is until you look at the market recovery trajectory. Gold came back strongly, far before other markets, and remained relatively stable since.
Which is quite similar to how bitcoin has behaved post-COVID crash. Initially, following suit with NASDAQ, S&P, and the Dow, the coin now seems to be working in juxtaposition to them. Meaning that it might be the asset of choice for those who are wary of the fiat systems that are currently controlling finance. Closely following suit of gold.
So-called “safe-haven” assets are defined as assets that are expected to retain or increase in value during turbulent markets. These assets are obtained in order to limit investor’s exposure to losses that would take place in traditional markets. However, it’s rare that any market will act accordingly in the midst of a total market crash- as exemplified by both the crash of 2008 and the one experienced in March of this year.
Where these types of assets do shine, is during recession periods; or during times of prolonged turmoil on Wall Street. As other investments sharply fall, or become extremely volatile, or go seemingly dormant, safe-haven assets tend to regain their footing and stay strong.
What We Have Learned From COVID-19
COVID-19 has taught us many things about ourselves and the world we live in. From how we understand science, to the trusts we hold in our governments. It has arguably taken the concept of “normal” and turned it on its ear. With a third of the world’s population in lockdown as of April 23 of 2020, supply chains, economies, and safe-havens have all been disrupted.
Traditional safe-haven assets, like gold, US Treasury Bills, and even defensive stocks have taken a critical blow. As nations around the world clamor to regain stable economic footing, pumping money into economies in need, Main Street is starting to feel the squeeze. More fund managers voice concern over the long-term effects of current stimulus packages, fearing that propping up demand in a slumbering economy may result in crippling inflation later.
Bitcoin and other cryptocurrencies can live outside of these issues, however- as their markets are designed to be free from the inflammatory efforts of governments. Venezuela currently offers an excellent example of this theory, as they have been living in a hyper-inflated economy since 2016, with the novel coronavirus only exacerbating long known issues- the country has seen an explosion in cryptocurrency adoption.
Reconciling Volatility with Bitcoin’s Maturation Rate
Perhaps what has stalled so many investors in the past has been the reality that Bitcoin had never faced a true economic crisis. One which COVID has finally supplied.
Following a shakeout and pricing reset, Bitcoin has only seemed to shore its foundation, despite historic volatility. Specifically when the decreasing volatility of bitcoin is weighted against the newfound volatility of traditional assets and investments. Leaving only bitcoin and gold passing shakeouts and regaining solidarity.
Many seasoned investors see this as proof of bitcoins maturation from confused currency toward a store-of-value asset similar to gold. With rising gold prices and declining bitcoin volatility only serving to support this theory, bitcoin could well be seen to become the newest safe-haven asset with no metal to be found.