BTC’s Inability to Stay Strong in the Time of Crisis Raises Questions About its Safe Haven Status
The past couple of months, amid coronavirus crisis, has seen some of the major markets crash and assets fall to their historic lows including the safe haven assets like Gold, government bonds, and even Bitcoin. Only this week, Crude oil prices registered historical lows and the futures market even went into the negative. While the reason for the failure of traditional financial institutions and assets is understandable, many are mostly shocked as to how Bitcoin has failed to rise to the occasion since many believe this was a perfect time and opportunity for the digital currency to prove its worth.
Bitcoin was created in the aftermath of the 2008 financial recession as a form of an alternate financial system which wouldn’t be controlled by any centralized authorities, thus the issue of inflation won’t arise and while the traditional financial system would be in ruins people could turn towards Bitcoin to save them.
However, that hasn’t happened yet, in fact, Bitcoin saw one of its worst price slumps since its inception when on March 12th, its value fell by almost 50%. And even after more than a month, it has not been able to recover its lost ground.
Bitcoin is also scheduled to undergo the halving of its block reward, which means the number of Bitcoins produced per block will be cut in half, and instead of the current 12.5BTC block, after the halving, each block would produce only 6.25 BTC. Thus the supply of Bitcoin would be less making it a highly bullish event. Therefore, this should have been the best time for Bitcoin, but its price does not reflect the same making many question whether Bitcoin will be able to live up to the hype.
Dan McArdle, co-founder of Messari, a Bitcoin and blockchain analytic firm seems to have an answer. McArdle believes Bitcoin has not failed despite the ongoing struggle to keep its price above the $7,000 mark. He explained that people often believe Bitcoin would act as a hedge at the time of financial crisis or recession, but in reality, Bitcoin is a hedge against inflation and loss of confidence in fiat currencies which he predicted almost two years ago, claiming that against the popular belief Bitcoin won’t be performing in times of liquidity crunch. He explained,
“People have/had this notion that bitcoin is a hedge against a recession, or specifically the S&P. I've thought that's wrong for a while, and indeed we saw a high correlation with the S&P last month as investors everywhere sold everything in the first real global liquidity crunch we've seen since 2009. No surprise bitcoin did not outperform.”
Bitcoin Will Flourish Once People Realize the Fiat System is Flawed
The ongoing crisis has brought the whole world to a standstill as the majority of industries have shutdown. The government has decided to offer and maintain the necessary liquidity of the market by printing trillions, which begs the question if the governments can print as they wish to keep the market liquidated why do they need our tax money? And how flawed the fiat system is if it is not backed by anything.
McArdle said that unless the people realize these flaws in the fiat monetary system and how centralized bodies and government control has led them to several recessions, Bitcoin won’t thrive. At present Bitcoin is not even seen as a safe haven and mostly a lucrative form of investment to make profits, so unless Bitcoin reaches the level of a truly parallel financial ecosystem it would be difficult for it to prove its worth.
Whether Bitcoin would reach the levels of 2017 price rise is still debatable given Bitcoin was highly volatile at that point and its price was mostly influenced by rumors news and whales, however, as of today, Bitcoin has come a long way. The volatility even though higher than other asset classes is quite low when compared to the 2017 level. The mining difficulty which directly shows the miner’s density on the platform is also at its all-time high, and many believe even if Bitcoin fails to rally like 2017, it would surely see those highs in the aftermath of halving and the price factor might kick in after a year.