Do we have a safe haven at Bitcoin or are we an opportunistic asset?
After more than 7 months of aligning with traditional markets, many analysts still don’t see the correlation. However, it only took a couple of weeks to declare Bitcoin officially uncoupled from the stock. Anthony Pompliano, an influencer and co-founder of Morgan Creek Digital, recently stated that „the decoupling of Bitcoin and the stock shows that BTC is the ‚ultimate safe haven. In other words, according to him, Bitcoin has a zero correlation with the stocks once again and critics were wrong to doubt its „safe harbor“ status.
The stock markets have been showing signs of weakness lately due to the blocking of stimulus in Congress, mixed economic reports and uncertainty surrounding the elections. While this is happening, Bitcoin experienced a spike due to the news of PayPal joining the crypto world. For years, it was said that a global economic crisis would increase Bitcoin’s price dramatically. In this scenario, the stock market and the dollar would lose value. But Bitcoin would be the „safe haven“ in times of panic. The coronavirus crash came and that’s not what happened. In fact, the opposite happened.
Bitcoin, on the other hand, has shown that it reacts positively to injections of liquidity.
And, for a long time, its behavior seems to be imitating the behavior of a Big Tech. What are the „safe havens“? Treasury bonds, the dollar and gold, mainly. These „safe“ assets are especially known for their stability and resilience. In a crisis, investors take refuge in these assets to escape the collapse of prices in the stock markets. A fixed income investment is considered safer than an equity investment. That is, bonds are usually safer than stocks. However, stocks, despite being riskier investments, offer (potentially) higher returns. In other words, a safe haven is a boring, ultra-conservative investment.
Due to concerns about the coronavirus, the markets panicked in March and April. Due to doubts and uncertainty, many investors decided to sell their shares, causing a crash. At that time, the dollar strengthened and purchases of Treasury bonds skyrocketed. These assets do not offer great returns, but they do offer stability. And, in moments of panic, the risk is too high and investors usually choose the stability of a boring asset.
The US Federal Reserve must provide liquidity to encourage investment.
This means that it must weaken the dollar on the one hand, and it must buy Treasury bonds on the other, to reduce their profitability. In this way, increase the demand for the riskiest financial assets. This was the medicine implemented by the authorities during this crisis and it worked. The markets have indeed recovered quite a bit from the March crash.
In January and February of this year, people like Anthony Pompliano and reporter Max Keiser told us about Bitcoin being a „safe haven“ in times of coronavirus. We must remember that this is the first global economic crisis for Bitcoin. However, during this crisis, Bitcoin has behaved like a Big Tech. During the panic, it collapses. After the stimuli, it recovers.
It’s clear to many that Bitcoin isn’t a safe haven because of the volatility. Their track record tells us that Bitcoin can lose more than 80% of its value in a relatively short time. In 2017, for example, Bitcoin reached almost $20,000 per unit, and then a year later, Bitcoin reached a low of about $3,000 per unit. In addition, with Bitcoin, we have many regulatory and technological uncertainties. In fact, to be frank, it’s crazy to say it’s a safe haven. Others might say it’s irresponsible to represent an asset that’s as risky as it is safe.
Let’s say, by a quirk of fate, we find the president of country X at an embassy party in country Y. The subject asks us for advice and asks us if he should put all the Social Security funds into Bitcoin because with the Social Security money he cannot take risks. He should only invest in safe assets. But after talking to us, he’s seriously considering selling U.S. Treasury bonds to put everything into Bitcoin. After all, according to us, Bitcoin is a „safe haven