- Bitcoin functions as a hedge against “inflation, geopolitical strife, and central banks” instead of a pandemic
- The market is experiencing a “very strong risk-off environment,” where gold prices fell as well
The price of bitcoin started declining along with the S&P 500 towards the second half of February amidst the spreading coronavirus (Covid-19). Between Feb. 20 to 28, the S&P 500 fell 14% while the price of BTC slid 13%.
S&P is -7.6% today.
Based on historical volatility, a -7.6% move in S&P is == to -41% in BTC.
Yet in the last 24 hrs BTC is only -5%.
And only -0.5% since midnight today.
Treasuries are up (GOVT +1%)! That's a negative correl, which is a different thing. pic.twitter.com/F0oVlGp8m0
— Hunter Horsley (@HHorsley) March 9, 2020
The drop in the crypto asset’s price in line with the S&P 500 led people to question the narrative that Bitcoin could function as a safe haven like gold.
“Safe from what?”
Analyst Mati Greenspan argues this means, Bitcoin functions as a hedge against “inflation, geopolitical strife, and central banks” instead of falling corporate profits or pandemics.
Bloomberg’s Joe Weisenthal also shared a similar opinion saying that Bitcoin is still a safe haven asset but you can’t expect it to hold up well in the current financial market panic.
“The most important thing is that to talk about something being a “safe haven” you have to ask “safe from what?” Different assets — gold, land, diamonds, ammo, canned sardines, Treasuries, dollar bills, Bitcoin — can each offer safety, but from different risks,” said Weisenthal. He added:
“Treasuries won't help you in a natural disaster or a war. Canned tuna won't help you in a liquidity crisis. Gold bricks won't help you if you have to escape a country on foot (too heavy). For each safe haven, there is its time.”
This theory according to SFOX aligns with the data recorded in January this year when the BTC price rose amidst US-Iran tensions.
A “very strong risk-off environment”
If we take a look at the traditional safe-haven asset gold, its prices fell about 5% during this period as well. This has been simply the market experiencing a “very strong risk-off environment,” where traders are selling off even those assets that are typically seen as relatively safe.
The market movements are constrained to just a couple of weeks and to assess the extent bitcoin is growing into a safe haven asset, we need to take a longer-term perspective.
“What is a safe haven anyway? Gold is down 2% since this whole market rout started yet nobody questions its status. In the initial volatility of such an event ppl tend to sell everything indiscriminately. Let's see what happens when the panic subsides,” said former eToro analyst Greenspan.
Leading to the digital revolution
Today, while bitcoin is up 4.19%, climbing to $8,158, just as stocks are trying to rebound on its worst day since the 2008 financial crisis, gold prices are on a corrective pullback after hitting a 7-year high above $1,700 on Monday. In 2008 as well, the price of the yellow metal fell nearly 25% following stocks as investors try to get hold of cash.
With Saudi Arabia increasing the output to a record 12.3 million barrels a day in April and uncertainty engendered by the virus that has sickened at least 115,000 and claimed over 4,000 lives worldwide, gold bulls remain fairly optimistic.
The same has been happening with bitcoin as Raoul Paul Founder and CEO Real Vision Group said, “It feels like any hedge fund that was long bitcoin is having to liquidate. VAR takes no prisoners.”
VAR is the measure of risk in a portfolio connected to volatility and as the volume of all assets goes up, investors have to reduce risk.
“It's a buying opportunity but no need to rush in yet. The current event in markets will accelerate the need for the new financial system over time. We know where this is leading to – the digital revolution. Hodl on to your hats…!” Paul said.