Bitcoin’s status as a ‘safe haven’ in a plummeting market has again been a topic of discussion with the coronavirus outbreak causing stocks to drop and gold to rise, but all the chatter is just wishful thinking and cannot be proven until Bitcoin goes through a full-on global recession.
Markets Drop While Gold Rips
The coronavirus outbreak that started towards the end of 2019 took a while to impact global stock markets, but it is finally starting to do so – the S&P 500 is down almost 300 points this week alone, the NASDAQ has spent the month in reverse, and the FTSE100 is down almost 60 points in five weeks.
On the flip side, gold has been on a Bitcoin-style parabolic tear, rising by over $200 this year alone to hit a seven-year high, with silver well placed to echo gold’s performance over the past 18 months. Gold and silver both started to reverse their multi-year bear markets well before the outbreak, around the time that warnings began emerging regarding a potential new recession, and the coronavirus has only exacerbated the fleeing from stocks to recognized safe haven assets.
Bitcoin Turns it Around
Interestingly, Bitcoin also began to reverse its 18-month bear market in late 2019, just a few weeks after gold did in late 2018, as it ran up to $14,000 within six months. More recently however, it has matched gold in its performance this year, rising from $6,800 to $10,500 in 2020 while the stock market has struggled and recently reversed. This prompted some to decide that Bitcoin was now a safe haven:
Want a safe haven? Look no further than bitcoin.
Corona virus can’t stop $BTC from working and building new blocks
— Preston Miller (@SouthernBlock) February 24, 2020
Strong price correlation between gold and #bitcoin after the stock market opened this morning. Could be evidence that investors are starting to use cryptocurrency as a safe haven pic.twitter.com/yqYEfkKbId
— Andrew Justin (@andrewjustinWX) February 18, 2020
These individuals, and anyone else thinking that this was Bitcoin emerging as a safe haven asset, were mistaking correlation for causation, which has been proved correct since Bitcoin has declined this month while gold has, until very recently, continued to increase in value.
Bitcoin Needs a Recession
The fact is that no asset can be termed a safe haven if its only tests have been short term issues, like pandemics. As Investopedia states:
Most times, when the market rises or falls, it is for a short period of time. However, there are times, such as during an economic recession, when the downturn of the market is prolonged. […] While most assets are falling in value, safe havens either retain or increase in value.
The key here is ‘prolonged’. Bitcoin was born on the back of the global financial crash in 2008, and so has never experienced a proper recession. Gold meanwhile has gone through several, and experienced a boom in the years after the recession as investors naturally fled to it when shares tumbled, experiencing a mammoth three-year bull market. This is not Bitcoin’s fault of course, and time may change this, but it is a matter of fact nonetheless.
There have been times when Bitcoin’s price has been a direct result of geo-political tensions, for example in Cyprus in 2013, but overall it has been more of a non-correlated asset than a safe haven, going up and down whatever the world is doing.
Square Peg in a Round Hole?
In its eleven-year history, Bitcoin has never really been tested as to its capacity as a safe haven for money, and indeed it still seems too volatile to be considered one. Incidents like the coronavirus outbreak indicate that, when the next recession comes, Bitcoin either won’t be viewed as a safe haven or it will do its own thing regardless of what stocks, gold, and silver are doing.
This is probably just as well, because Bitcoin wasn’t intended as a safe haven for the wealthy to protect their capital in economic downtimes – it was intended as an alternative form of currency that couldn’t be seized by authorities, and in that capacity it seems to be working extremely well.