Is Bitcoin a safe haven? Does it have to be?
In the wake of the 2008 economic crisis, Satoshi Nakamoto built the world’s first cryptocurrency, Bitcoin. It was created to revolt against the centralized and the traditional means of banking. This week, another financial catastrophe struck the whole world when the stock markets witnessed a dramatic fall. Though Bitcoin is touted to be the safe haven in the event of a crisis, the digital asset took a nosedive following the tracks of the stock markets.
This stirred a debate not only in the crypto community but also in the whole financial sector. Just like everybody, we are also puzzled if bitcoin is a safe haven. But the critical question in this scenario is — Does it have to be? ChangeHero attempts to find answers to these questions in this short post.
Also Read: A Candid Explanation of Bitcoin
Black Monday
On Monday, the 9th of March, stock markets around the world closed with major losses. In the US, the Dow Jones Industrial Average shed more than 2000 points, according to the BBC. In the same vein, the S&P 500 and NASDAQ fell 7.6% and 7.3% respectively. The UK and European countries’ stock market indexes also witnessed similar declines.
Analysts contribute this recession to the outbreak of the Coronavirus epidemic which halted manufacturing in China. Making things worse, recent talks between Russia and OPEC turned out to be pale and Saudi Arabia deliberately slashed the prices waging a war. The whole scenario resulted in the worst collapse of the market since the 2008 Global Economic Crisis and the day it happened was given the moniker, Black Monday. Contrary to this, Gold does what it always has and acted as a safe haven, the metal smashed seven-year high of $1,700 per ounce.
Enter the Bitcoin
Bitcoin has long been hailed as the digital gold and crypto-maximalists claims that it fills the void of the traditional stocks. The world’s first cryptocurrency was hardcoded with digital scarcity and the supply is limited to 21 million. This makes the asset similar to precious metals like Gold. Though other cryptocurrencies have followed the same knack, they were not able to pull the crowd and reach heights as Bitcoin did.
Bitcoin is a non-correlated asset which means that it does not move in any direction with respect to the traditional assets like stocks and bonds. A report by SFOX bolsters this argument of Bitcoin being a safe haven. In their analysis, Bitcoin did not correlate with both the S&P 500 and Gold in the year 2019. Moreover, the digital asset resulted in higher year-over-year returns and lesser volatility than its counterpart, Gold.
Carnage
At the beginning of 2020, Bitcoin rose at a neck-breaking speed hitting the ten thousand dollar mark. A sudden drop in the price shattered the hopes of the crypto-savvy. The storm struck in the second week of March when Bitcoin lost a shocking 50% in a matter of two days. Alts also took the hit resulting in over $50 billion being wiped from the market. As of writing, BTC fell below $5,500 according to CoinMarketCap.
Sadly, this steep trend turned out to be in correlation with the global economic situation where the traditional market suffered from huge losses. It sparked the discussion if Bitcoin is really a safe haven. However, some related this blood bath to the Plus Token, a Ponzi scheme. Last Saturday, they sold over $100 Million worth of Bitcoin and flooded the market with bitcoins and sell orders. This has supposedly triggered the collapse of the market.
Many have taken to Twitter to voice their opinion on this. Block Journal’s CEO who goes with the alias Crypto Godfather was quick to take a jibe at the claims of Bitcoin being the safe haven. Brian Armstrong, CEO of Coinbase seemed to be puzzled with the market situation. We also found many Twitterati poke fun at the current situation.
Back to Basics — Bitcoin: A Peer-to-Peer Electronic Cash System
The title of the Bitcoin Whitepaper clearly quotes, “A Peer-to-Peer Electronic Cash System”. It is evident that Satoshi Nakamoto has created the Bitcoin to function as a means of payment. Amidst the argy-bargy over the claims for being a safe haven the original purpose of the Bitcoin, a peer-to-peer version of digital cash to transact value, was long forgotten.
We are all aware that the supply of this digital asset is limited and with the increase in use, the demand raises which would result in the sky-rocketing of the value. The only way to see the value of the Bitcoin or any crypto to raise is to put it to use. For this to be achieved a number of developments which make the masses to switch from the dollar bills to use crypto in the everyday-life have to be made and awareness among the people about crypto must be raised. In short, adoption is the key.
So, is bitcoin a safe haven? The historical review suggests it was not correlated but the current situation has forced many to draw a conclusion that it’s not. And the next and the most important question — Does Bitcoin really have to be a safe haven? No, it doesn’t have to be, at least for now. What the people need now is a decentralized currency that offers seamless payments and this will indeed make it more valuable than the rest in the future.
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