In traditional investing, a safe haven asset is one where the price typically rises when traders are fearful of increasing risk, or in the face of convulsing stock markets; money is pulled from riskier assets and shifted into “safer” like gold or U.S. Treasuries, expected to be a more reliable store of value.
One theory among bitcoin investors is that while the cryptocurrency lacks gold’s luster or long track record as a store of value, it shares the key property of being difficult to mine; the supply of new bitcoin is strictly regulated by its 11-year-old original programming code, according toa recent article by coindesk.
As the new year dawned, war tensions jumped and investors turned to “safe havens” to protect assets and find speculative alpha. During this time, gold – the traditional port in a storm – responded strongly; low-yielding US Treasuries did not. Which to me suggests investors are potentially looking for global safe haven refuges untethered to the whims of a singular country’s central bank.
Bitcoin can check this particular box and did grab attention, with many claiming its short-term price action acting like a safe haven asset. But has it achieved this vaunted global role? Let’s look closer.
As 2020 kicked-in, The Wall Street Journal reported that gold “jumped to its highest level in almost seven years with tensions between U.S. and Iran escalating, the latest example of investors favoring the safe-haven metal to protect against a market downturn.” The article went on to cite CFTC data showing hedge funds and other speculators ramped up bets on gold prices for the third consecutive week, to the highest level in months.
Mirroring the shiny metal and in the same early days of the new decade, Bitcoin achieved $8,300 causing many Bitcoin Bulls to claim “Safe Haven” victory. However despite this very short-term correlation, the longer term data has suggested no correlation (or anti-correlation) to the S&P and no long-term correlation to gold.
By Chris Wittenborn, Director of Business Development, Velocity Markets