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 1st, gold prices are up +10%, while Bitcoin is down -10%," the Kobeissi Letter pointed out on March 3. "Cryptocurrencies are no longer viewed as a hedge."(Bitcoin fell even more last week.)
But some market observers say this is not entirely unexpected.
Was Bitcoin ever a safe-haven asset?
"I have never viewed Bitcoin as a 'safe-haven asset,' " Paul Schatz, founder and president of the financial advisory firm Heritage Capital, told us. "Bitcoin'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, Bitcoin 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. Bitcoin can drop 80% in a major correction. I don't think gold would do that."
"Cryptocurrencies, including Bitcoin, have never been a hedge 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 that there are different types of safe-haven assets: one that applies to geopolitical events like wars, pandemics, and economic recessions, and another that applies to strictly financial events like bank failures or a weakening dollar.
The perception of Bitcoin may be changing. In 2024, major asset managers like BlackRock and Fidelity will include it in their exchange-traded fund (ETF) platforms, expanding its ownership base, but also potentially altering its "narrative."
Now, it is more broadly seen as a speculative or "risk-on" asset, similar to tech stocks.
"BlockBeats and the entire cryptocurrency space have become highly correlated with risk assets, and they typically exhibit an inverse correlation to safe-haven assets like gold," Adam Kobeissi, editor of the Kobeissi Letter, told us.
He continued that with "more institutional participation and leverage," the future of Bitcoin is highly uncertain, and the "narrative has shifted from Bitcoin being viewed as 'digital gold' to a more speculative asset."
One might think that the acceptance of traditional financial giants like BlackRock and Fidelity would make Bitcoin's future more secure, reinforcing its safe-haven narrative - but according to Venugopal, that is not the case:
"Big companies flocking to Bitcoin does not mean it becomes safer. In fact, it means Bitcoin is becoming more like any other asset that institutional investors tend to invest in."
Venugopal continued that it will be more influenced by the regular trading and drawdown strategies used by institutional investors. "If anything, Bitcoin is now more correlated with the risk assets in the market."
The Dual Nature of Bitcoin
Few would deny that Bitcoin and other cryptocurrencies are still subject to significant price volatility, especially recently with 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 theirs," Noelle Acheson, author of the Crypto is Macro Now newsletter, told us.
The key question is whether Bitcoin can maintain its value against fiat currencies in the long run, and it has already proven able to do so. "The data proves its efficacy - over almost any four-year time frame, Bitcoin's performance has outperformed gold and US stocks," Acheson said, adding:
"Bitcoin 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 Bitcoin may be a hedge against certain events but not others.
Gold can serve as a hedge against geopolitical issues like trade wars, while both Bitcoin and gold can serve as hedges against inflation. "So both have a useful role to play in a portfolio as hedging tools," Kendrick added.
Others, including Cathie Wood of Ark Investment, also agree that Bitcoin acted as a hedge during the SVB and Signature Bank runs in March 2023. According to CoinGecko data, when SVB collapsed on March 10, 2023, the price of Bitcoin was around $20,200. A week later, it was close to $27,400, a rise of around 35%.
Schatz does not believe that Bitcoin is an inflation hedge. The events of 2022, when FTX and other crypto companies collapsed, and the Crypto Winter began, "severely 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 the short-term volatility of asset classes "typically has the least correlation over long-term time frames." While currently pulled back, many of Bitcoin's fundamentals remain positive: the US government's support for crypto, the announcement of US Bitcoin reserves, and the surge in cryptocurrency 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 Bitcoin 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 Bitcoin weakness."
The market overall is struggling. "The resurgent specter of inflation and the economic slowdown have severely impacted expectations," which has also affected Bitcoin's price, Acheson further noted.
"Given this outlook, and Bitcoin's dual nature as a risk asset and long-term hedge, I'm surprised it hasn't fallen further."
Venugopal said that since 2017, Bitcoin has not been a short-term hedge or safe-haven asset. As for the long-term argument of Bitcoin becoming digital gold due to its 21 million supply cap, this only holds true if "most investors collectively expect Bitcoin to appreciate over time," and "that may or may not be the case."
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