Source: Cointelegraph
Original: “Under the Shadow of Trade Wars, Bitcoin's (BTC) Status as a Safe Haven Asset is Questioned”

A few years ago, many in the cryptocurrency community described Bitcoin (BTC) as a "safe haven" asset. Today, this claim is less common.

Safe haven assets are those that can maintain or increase in value during times of economic stress. They can include government bonds, currencies like the US dollar, commodities like gold, or even blue-chip stocks.

The escalating global tariff war initiated by the US, coupled with unsettling economic reports, has led to a stock market crash, and Bitcoin has followed suit—something that shouldn't happen to a "safe haven" asset.

Compared to gold, Bitcoin's performance has also been disappointing. The Kobeissi Letter noted on March 3: "Since January 1, gold prices have risen by +10%, while Bitcoin has fallen by -10%. Cryptocurrencies are no longer seen as safe haven assets." (Last week, Bitcoin's decline was even greater.)

However, some market observers say this is not surprising.

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

Was Bitcoin ever a safe haven asset?

Paul Schatz, founder and president of financial consulting firm Heritage Capital, told Cointelegraph: "I have never viewed Bitcoin as a 'safe haven' asset. The price volatility of Bitcoin is too great to categorize it as such, although I believe investors can and should allocate to such assets."

Jochen Stanzl, chief market analyst at CMC Markets (Germany), told Cointelegraph: "To me, Bitcoin is still a speculative tool rather than a safe haven asset. Safe haven investments like gold have intrinsic value and will never go to zero. Bitcoin could drop 80% during a significant correction. I don't think gold would experience that."

Buvaneshwaran Venugopal, an assistant professor of finance at the University of Central Florida, told Cointelegraph: "In my view, cryptocurrencies, including Bitcoin, have 'never been safe haven assets.'"

But things are not always as simple as they seem, especially in the realm of cryptocurrencies.

We can think of different types of safe haven assets: one type hedges against geopolitical events like wars, pandemics, and economic recessions, while another hedges against purely financial events like bank failures or a weakening dollar.

People's perceptions of Bitcoin may be changing. In 2024, large asset management firms like BlackRock and Fidelity are launching ETFs that include it, expanding its holder base, but this may also change its "narrative."

Today, it is more often viewed as a speculative or "risk" asset, similar to tech stocks.

Adam Kobeissi, editor of the Kobeissi Letter, told Cointelegraph: "Bitcoin and the entire cryptocurrency market are highly correlated with risk assets, and their movements often contrast with safe haven assets like gold."

He further pointed out that with "more institutional participation and leverage," there is much uncertainty regarding Bitcoin's direction, and a "narrative shift from 'digital gold' to a more speculative asset" has occurred.

People might think that acceptance by traditional financial giants like BlackRock and Fidelity would make Bitcoin's future more secure, thus supporting the safe haven narrative—but according to Venugopal, this is not the case:

"The investment of large companies in Bitcoin does not mean it becomes safer. In fact, it means Bitcoin is becoming more like other assets that institutional investors prefer to invest in."

Venugopal added that it will be more influenced by conventional trading and drawdown strategies used by institutional investors. "If there is any change, Bitcoin is now more correlated with risk assets in the market."

The Dual Nature of Bitcoin

Few deny that Bitcoin and other cryptocurrencies still exhibit significant price volatility, recently exacerbated by increased retail adoption of cryptocurrencies, particularly the meme coin craze, which Kobeissi referred to as "one of the largest cryptocurrency onboarding events in history." But perhaps this is not the focus of concern.

Noelle Acheson, author of the "Crypto is Macro Now" newsletter, told Cointelegraph: "Safe haven assets are always long-term assets, meaning short-term volatility is not a defining characteristic."

The biggest question is whether Bitcoin can maintain its value against fiat currencies in the long term, and it has done so. Acheson said: "Data confirms its effectiveness—over any four-year time frame, Bitcoin has outperformed gold and the US stock market." She added:

"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. As we have seen, it can possess both attributes simultaneously."

Another possibility is that Bitcoin may serve as a safe haven asset for certain events, but not for all events.

Geoff Kendrick, global head of digital asset research at Standard Chartered Bank, told Cointelegraph: "I see Bitcoin as a hedge against traditional financial issues," such as the economic downturn following the collapses of Silicon Valley Bank and Signature Bank two years ago, as well as "the risks of US Treasury bonds." However, for certain geopolitical events, Bitcoin may still trade as a risk asset, he said.

Gold can serve as a hedge against geopolitical issues like trade wars, while both Bitcoin and gold are hedges against inflation. Kendrick added: "Therefore, both are useful hedging tools in a portfolio."

Others, including Cathie Wood of Ark Investment, also agree that Bitcoin acted as a safe haven during the March 2023 SVB and Signature Bank run. According to CoinGecko data, when SVB collapsed on March 10, 2023, Bitcoin was priced at around $20,200. A week later, it rose to about $27,400, an increase of approximately 35%.

Schatz does not believe Bitcoin is a hedge against inflation. The events surrounding the collapse of FTX and other crypto companies in 2022 and the onset of the crypto winter "seriously undermined that argument."

Could it be a hedge against the dollar and US Treasury bonds? Schatz added: "That's possible, but those scenarios are quite frightening to think about."

Not a Time for Overreaction

Kobeissi agrees that short-term volatility in asset classes "often means little over the long term." Despite the current pullback, many fundamentals for Bitcoin remain bullish: a pro-crypto US government, the announcement of US Bitcoin reserves, and a surge in cryptocurrency adoption.

For market participants, the biggest question is: "What is the next major catalyst to drive the market forward?" Kobeissi told Cointelegraph. "That's why the market is pulling back and consolidating: it is looking for the next major catalyst."

Acheson added: "Since macro investors began viewing Bitcoin as a high-volatility, liquidity-sensitive risk asset, it has behaved like a risk asset." Furthermore, "it is almost always short-term traders who set the final price, and if they are withdrawing from risk assets, we will see Bitcoin weaken."

The market is generally under pressure. "The shadow of rekindled inflation and economic slowdown severely impacts expectations," which also affects Bitcoin's price. Acheson further noted:

"Given this outlook, and Bitcoin's dual nature as a risk asset and long-term safe haven asset, I am surprised it hasn't fallen deeper."

As for Venugopal, he believes Bitcoin has not been a short-term hedge tool or safe haven asset since 2017. The long-term argument that Bitcoin is digital gold due to its supply cap of 21 million coins "only holds if the majority of investors collectively expect Bitcoin to appreciate over time," and "this may or may not be the case."

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