Can Bitcoin Still Be Considered A Safe-haven Commodity?

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If you’re interested in economics – and we know that some of you are – you’ll be well aware that there are potential trade wars breaking out all over the world. In the face of this turmoil, most commodities have reacted in the way many would expect, with stocks tumbling and gold feeling some steady gains. Given that it carries the “Digital Gold” tag, many expected Bitcoin to experience an electric boost in its own right, but that hasn’t exactly been the case. Hovering between $8,000 and $9,000 in price, Bitcoin certainly still carries value, but it’s clear that people haven’t flocked to it in the face of a potential economic downturn. This begs the question, is Bitcoin still the safe-haven commodity that it once was? We’ve looked to find out!

A lesson from history

Some have argued that the recent dip in Bitcoin’s value has dented its reputation, but that argument has some pretty loose foundations when you consider the cryptocurrency’s history. Bitcoin is notoriously resilient, much more than recent investors will probably realize. Back in 2013, Bitcoin’s price skyrocketed by more than 80%, at a time when the world was up in arms regarding the financial and economic state of Cyprus. Its price might have fallen soon after, but it doesn’t take away from the fact that investors still looked for solace in Bitcoin when a notable European nation was struggling. Unsurprisingly, when Greece encountered severe financial difficulty and a possible Eurozone exit, Bitcoin experienced another price resurgence. Dips in price haven’t stopped Bitcoin from being a safe haven commodity in the past, but it appears that the current potential trade war hasn’t triggered the same shift in value.

Lack of liquidity

The obvious answer to why Bitcoin isn’t being boosted by economic turmoil anymore is that it simply isn’t the same cryptocurrency in 2018 as it has been in the past. Over the past 12 months, the liquidity of Bitcoin has changed dramatically, as the crypto has broken through into the mainstream. This, in turn, has changed how the cryptocurrency functions. Lending his voice to this argument, Mati Greenspan, (eToro Senior Market Analyst) said, “Traditional assets like gold have a lot more liquidity Bridges and gateways that facilitate flows to and from stocks, bonds, and ETFs. Bitcoin doesn’t have that framework in place just yet.” The lack of liquidity makes it tough for investors and traders to remove money from other commodities – such as stocks – and redirect it into the cryptocurrency market.

Day-to-day volatility

Bitcoin has always been volatile, but nowadays the cryptocurrency’s volatility carries a lot more weight. Swinging prices sub-$1,000 value were considered easy enough for investors to navigate, but with Bitcoin’s price now being more than 9x that, the risk level has been grown. This characteristic has somewhat hampered the cryptocurrency’s appeal as a store of value. According to Jacob Eliosoff – a leading crypto fund manager – Bitcoin’s “dramas” could now be taking a toll, “Bitcoin obviously remains tremendously volatile, both in random day-to-day and even hour-to-hour swings, and in its own internal dramas and crises, so it’s certainly not a reliable safe haven.” However, Eliosoff did note that this could change should price gains stabilize in 2018, with a pullback to previous highs being a “strong possibility” this year.

A new mainstream direction

Another way in which Bitcoin has changed is through its user base. Investors stood by a “hodl” at all costs mentality during the digital currency’s early days. While the “hodl” mentality is still in effect, it’s not as pronounced as it once was. During its formative years, very specific groups of investors – Libertarians and technologists included – snapped up Bitcoin due to its decentralized foundations. But, as the public interest in cryptocurrencies has surged, the digital currency has become a mainstream investment in many ways. “The base of Bitcoin has changed, in fact it has evolved, to a wider base of investors. People who have only invested in Equities are now looking for options as the rumblings in the Stock and Bond market increase,” said Charles Thorngren (CEO Noble Alternative Investments). Thorngren has made it clear that the change in investor base should be seen as a good thing, especially over the long term, “This new investor helps to establish a stronger Bitcoin market and adds legitimacy to the Cryptocurrencies as a whole.”

In a state of transition

The reality is that Bitcoin is in the midst of a transition phase right now. Every aspect surrounding Bitcoin is changing, with the digital currency undergoing something of a mainstream makeover. Through a new investor base, developments in scalability, and a growing number of Bitcoin investment products (see the rise in Bitcoin ETFs), the change in Bitcoin has probably removed it from the safe-haven investment conversation. That being said, as 2018 progresses and the direction of Bitcoin becomes clearer, you can expect Bitcoin to live up to its “Digital Gold” tag and become a store of value once again in the very near future.