Author: Andrew Singer

Compiled by: Block unicorn

A few years ago, many in the crypto community described Bitcoin as a "safe haven" asset. Nowadays, fewer and fewer people refer to it as such. Safe haven assets preserve or increase in value during periods of economic stress. They can be government bonds, currencies like the US dollar, commodities like gold, or even blue-chip stocks. The global tariff war sparked by the US and unsettling economic reports have already led to a stock market crash, and Bitcoin has followed suit - something that should not happen for a "safe haven" asset. Compared to gold, Bitcoin has also underperformed. "Since January 1, gold prices are up +10%, while Bitcoin is down -10%," the Kobeissi Letter noted on March 3. "Cryptocurrencies are no longer viewed as a hedge." (Bitcoin's decline was even greater last week.) But some market observers say this is not entirely unexpected.

Price chart of Bit (white) and gold (yellow) from December 1 to March 13. Source: Bitcoin Counter Flow

Was Bit ever a safe haven asset?

"I have never viewed Bit as a 'safe haven' asset," Paul Schatz, founder and president of financial advisory firm Heritage Capital, told us. "Bit's volatility is too high to be considered a safe haven, although I do believe investors can and should have an overall allocation to this asset class." "To me, Bit is still a speculative tool, not a safe haven asset," Jochen Stanzl, chief market analyst at CMC Markets (Germany), told us. "Safe haven investments like gold have intrinsic value and can never go to zero. Bit can drop 80% in a major correction. I don't think gold would do that." Cryptocurrencies, including Bit, "have never been 'hedging tools' in my view," Buvaneshwaran Venugopal, assistant professor of finance at the University of Central Florida, told us. But things are not always as clear-cut as they may initially appear, especially when it comes to cryptocurrencies. One could argue there are different types of safe haven assets: one for geopolitical events like wars, pandemics, and economic downturns, and another for strictly financial events like bank failures or a weakening dollar. Perceptions of Bit may be changing. In 2024, exchange-traded funds (ETFs) issued by major asset managers like BlackRock and Fidelity will include it, expanding its ownership base but potentially also altering its "narrative." Now, it is more broadly viewed as a speculative or "risk-on" asset, similar to tech stocks. "Bit and the entire crypto space have become highly correlated with risk assets, and they typically exhibit inverse correlation to safe haven assets like gold," Adam Kobeissi, editor-in-chief of The Kobeissi Letter, told us. He added that with "increased institutional participation and leverage," there is a lot of uncertainty around Bit's future, and the "narrative has shifted from Bit being viewed as 'digital gold' to a more speculative asset." One might think that the embrace of traditional finance giants like BlackRock and Fidelity would make Bit's future more secure, bolstering its safe haven narrative - but according to Venugopal, that is not the case: "Big companies entering Bit does not mean it becomes safer. In fact, it means Bit is becoming more like any other asset that institutional investors tend to invest in." Venugopal added that it will be more influenced by the regular trading and drawdown strategies used by institutional investors. "If anything, Bit is now more correlated with the risk assets in the market."

Bit's dual nature

Few would deny that Bit and other cryptocurrencies remain subject to significant price volatility, especially recently due to the surge in retail adoption of cryptocurrencies, particularly driven by the Meme coin frenzy, "which is one of the largest crypto onboarding events in history," Kobeissi pointed out. But perhaps this is the wrong focus. "Safe haven assets are always long-term assets, meaning short-term volatility is not a defining factor of their characteristics," Noelle Acheson, author of the Crypto is Macro Now newsletter, told us. The key question is whether Bit can maintain its value against fiat currencies in the long run, and it has already proven able to do so. "The data shows its efficacy - over almost any four-year time frame, Bit has outperformed gold and US equities," Acheson said, adding: "Bit has always had two key narratives: it is a short-term risk asset, sensitive to liquidity expectations and overall sentiment. It is also a long-term store of value. It can be both, as we've seen." Another possibility is that Bit may be a safe haven asset for some events but not others. Gold can serve as a hedge against geopolitical issues like trade wars, while both Bit and gold can serve as hedges against inflation. "So both have utility as hedging tools in a portfolio," Kendrick added. Others, including Cathie Wood of Ark Investment, also agree that Bit acted as a safe haven asset during the SVB and Signature Bank runs in March 2023. According to CoinGecko data, when SVB collapsed on March 10, 2023, the price of Bit was around $20,200. A week later, it was close to $27,400, a rise of around 35%.

Bit price dropped on March 10 and rebounded a week later. Source: CoinGecko

Schatz does not believe Bit is an inflation-hedging tool. The events of 2022, when FTX and other crypto firms collapsed and the Crypto Winter began, "greatly damaged that argument." Perhaps it is a hedge against the dollar and Treasuries? "That's possible, but those scenarios are quite dark and hard to imagine," Schatz added.

Don't overreact

Kobeissi agrees that short-term asset class volatility "is typically least correlated over long-term time frames." While currently pulled back, many of Bit's fundamentals remain positive: US government support for crypto, the announcement of US Bit reserves, and the surge in crypto adoption. The biggest question facing market participants is: "What is the next major catalyst to drive an upswing?" Kobeissi told us. "That's why you see market pullbacks and consolidation: searching for the next major catalyst." "Since macro investors started viewing Bit as a high-volatility, liquidity-sensitive risk asset, it has behaved like a risk asset," Acheson added. Additionally, "it's almost always the short-term traders setting the final price, and if they are exiting risk assets, we'll see Bit weakness." The market is struggling overall. "The resurgent specter of inflation and economic slowdown have severely impacted expectations," which has also affected Bit's price, Acheson further noted. "Given this outlook, and Bit's dual nature as a risk asset and long-term hedge, I'm surprised it hasn't fallen further," she said. Venugopal stated that since 2017, Bit has not been a short-term hedge or safe haven asset. As for the long-term argument of Bit becoming digital gold due to its 21 million supply cap, this only holds if "most investors collectively expect Bit to appreciate over time," and "that may or may not be the case."