Bitcoin has proven to us time and time again that it has the capability of being a safe haven when some kind of issue is seen with the traditional markets. This was the truth when there was the whole fiasco with US-Iran relations. Most Iranians started to search for ways to stock up on Bitcoin because the local Rial was going to tank immediately (and it did).
Although the US-Iran war was not that big of a hit to the stock market back in the United States, it was still a big deal for Bitcoin. This was mostly due to the asset’s non-affiliation with a jurisdiction. This means that no matter what happens in the world, it’s unlikely for Bitcoin to be directly affected in a negative way.
ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
In fact, Bitcoin is like the antipathy of the stock market. If some kind of political issue happens, everybody clings to Bitcoin, and if the market is healthy BTC gets kind of tossed to the side.
Well, what about now that we have a global epidemic in the making due to the coronavirus? Is Bitcoin a safe haven again? Well, not necessarily.
Explaining the February spike
The whole idea of an asset being a safe haven is that it helps investors save themselves from the issues with traditional finances. This was exactly what happened during the Iran crisis. The crisis happened, Bitcoin increased in price. Once everything calmed down, so did Bitcoin.
With coronavirus, it’s been a bit different. Once it was recognized as an official global threat, only then did Bitcoin start climbing during the last weeks of February. But if we take a look at the charts now, BTC is down significantly, but the threat of the virus is still there. This does technically negate the whole idea of Bitcoin being a safe haven, but we must say that the “coronavirus panic” is not fully in motion just yet.
Let’s take some data from private companies dealing with cryptocurrencies. According to Bitcoin Trader, a crypto trading software, the traffic they experience during political crises is significantly diminished. Sure this may sound like an anomaly, but the reality is that people switch immediately over to crypto exchanges because small investments and lightning speed trading are not efficient at that point.
You can learn more about Bitcoin as well and see how this data shows the pattern of investor trust in the software during global economic issues as well. It’s quite surprising to see that even altcoins that become extremely volatile during these crises are not touched as well, even though they don’t have major spikes at the time. It clearly outlines the mentality of a modern trader at this point.
Considering Bitcoin a safe haven is unhealthy
Seeing Bitcoin as something angelic during times of crisis is a very dangerous mentality for a trader, especially if they are dealing with large volumes. The reason is pretty much self-explanatory on the February-March charts.
No matter what happens that increases Bitcoin’s price, there is no predicting when that panic is going to fade and bring the coin back down, sometimes even further than it already was.
Although playing with this asset is somewhat beneficial if the pattern is understood (which is currently not) it’s still recommended by thousands of experts that the best safe-haven investment is real estate.
Even if prices hit the floor at some point, there is no “predicting” if they’re going to continue doing so, because they most definitely are not. As long as there is real estate, there is a potential customer, thus making it the perfect safe-haven, alongside gold of course.
The conclusion is simple. Panic affects markets in a way that is hard to predict, so drawing decisive conclusions about this or that asset from it is not necessarily correct and could lead to issues once these crises repeat themselves in the future. And they always do.