Why Bitcoin Did Not Show Safe-haven Properties After Falling Below $35,000

On February 24, the market showed that BTC fell below $35,000, and the intraday decline widened to 9.17%. As Russia began military operations in Ukraine, the price of Bitcoin fell below $35,000 for the first time since July 2021. Some analysts warned that the Bitcoin sell-off may worsen before tensions in Eastern Europe subside.

As the panic caused by the Russian-Ukrainian crisis continued to spread, spot gold once stood at $1,930 per ounce, setting a new high since January last year. Why did BTC, which has always been considered to have "safe haven" properties, not show safe haven properties, but continued to be sluggish?

Zhao Wei, a researcher at the European Economic Research Institute, pointed out to Golden Finance that compared with the rise of gold driven by risk aversion, Bitcoin's performance is relatively sluggish. The main reasons are: on the one hand, Bitcoin is a relatively high-risk asset and cannot temporarily become a safe-haven option for mainstream funds when the possibility of war increases significantly. On the other hand, with the entry of many mainstream institutions and listed companies, the correlation between Bitcoin and the Nasdaq index continues to increase. The continued deterioration of the situation between Russia and Ukraine has caused both Russian and US stocks to suffer shocks , and Bitcoin cannot be immune. In the worst case, the market value of cryptocurrencies cannot rule out the possibility of continued decline due to relatively insufficient liquidity. Of course, the value potential of the crypto market is far from reaching the critical point, which is enough to support the expectation of long bull market. There are risks in the market, and the uncertainty of the external environment is continuing to increase, so investment still needs to be rational.

In addition to short-term conflict factors, Bitcoin's loss of the 35,000 mark is also a phased result of the resonance of multiple factors.

Barry Bannister, managing director and chief equity strategist at wealth management firm Stifel, believes that Bitcoin could fall to $10,000 by 2023. In a report to Insider, Bannister pointed to global money supply, real 10-year yields, and equity risk premium as three macro factors that could negatively impact BTC prices throughout the year and in 2023. The strategist said that these factors work together with the Federal Reserve's monetary tightening and rate hikes, and fundamentals suggest that Bitcoin will continue to fall.

In addition, the analyst also pointed out that if the global money supply dynamics see a strong dollar slowing down the global M2 money supply, the price of Bitcoin could fall. Another macro factor is that rising 10-year real yields could hinder Bitcoin. In addition, the third factor is "equity premium risk". As the US central bank "continues" to raise interest rates, higher interest rates will increase the "equity risk premium", which means that the outlook for BTC is bearish, and the S&P 500 and Bitcoin may collapse in 2023.

Regarding the continued decline of Bitcoin, Zhao Wei, a researcher at the European Easy Research Institute, analyzed to Golden Finance that on the one hand, long-term quantitative easing has led to a continuous rise in inflation rates in the United States, Europe and other regions, and hit a multi-year high. Central banks of various countries have released hawkish signals, and expectations of interest rate hikes have risen globally. Under the tightening of monetary policy, various financial markets will suffer setbacks to varying degrees due to the end of water release. In mid-March, the Federal Reserve will issue a resolution statement, and it is expected that the market will react in advance. On the other hand, the situation between Russia and Ukraine is becoming increasingly tense, and the possibility of a local war is gradually increasing. Under the spread of panic, there is a demand for safe haven funds in financial markets such as Russian stocks and US stocks. Driven by the external environment, Bitcoin will inevitably fall in the short term.

It is worth mentioning that the mathematician Nassim Nicholas Taleb, author of books such as The Black Swan and Antifragile, criticized Bitcoin on Twitter, saying: BTC is not a hedge against inflation, nor is it a hedge against companies. Moreover, Bitcoin is not a hedge against geopolitical events, in fact, it is the opposite. Bitcoin is a "perfect fool's game" during low interest rates.

Despite this, there are relatively optimistic voices. Willy Woo, a Bitcoin analyst and co-founder of the software company Hypersheet, believes that despite the current peak level of panic, on-chain indicators show that BTC is not in a bear market. Speaking on the "What Bitcoin Did" podcast hosted by Peter McCormack on January 30, Willy Woo mentioned some key indicators, such as a large number of long-term holders (wallets held for five months or more) and a growing accumulation rate that indicate that the market has not reversed and switched to a bear market.