Bitcoin hits 18,000. Why is this “safe haven asset” better than gold?

On the evening of November 17th, Beijing time, the price of Bitcoin exceeded 17,000 US dollars and once again became a hot search on Weibo. As mentioned earlier, Trump's dissatisfaction and resistance to the election may increase investors' demand for Bitcoin's safe-haven properties. There are many different opinions on whether Bitcoin has safe-haven properties. We analyze it from different angles.

Definition of safe haven assets

Unclear definitions will inevitably affect people's thinking. What is the definition of "safe haven" and what is the definition of "safe haven assets"? These are the questions we need to clarify first. The second question is what risks are being avoided and how effective the risk hedging is.

In the traditional definition: "Hedging: A defensive investment strategy, usually refers to the use of financial instruments, especially derivative instruments, to hedge against the volatility of spot underlying assets. The English word is hedge, which is also translated as hedging or hedging."

“Safe-haven assets refer to relatively stable assets whose prices will not fluctuate too much with market changes, such as gold, the U.S. dollar, etc., and the Swiss franc and the Japanese yen, which are often overlooked.”

If we follow the traditional definition of "safe haven assets", that is, relatively small fluctuations, Bitcoin certainly does not meet the requirements. However, buying Bitcoin for appreciation and avoiding the risk of dollar depreciation has in fact become a safe haven asset. In the past two years, gold has risen from 1,100 to 2,000. With such a large fluctuation, it cannot actually be considered a "safe haven asset" in the traditional sense.

The author believes that the definition of "safe-haven assets" should be: assets that help humans avoid certain risks (depreciation, unusability, plunder, etc.), which have nothing to do with volatility. Stockpiling masks and Bitcoin to avoid the epidemic are both purchasing safe-haven assets.

Whether the ability to hedge is to compare the size of volatility or the ability to resist risks, if you want to hedge against the risk of "depreciation", assets with large appreciation rates are definitely good "safe-haven assets".

The US dollar, Japanese yen, Swiss franc and gold are the kings of safe havens, and the RMB will be the king in the future. According to the volatility index, the RMB's volatility is between that of the US dollar and gold, so it should be a "safe haven asset" now. Traditional financial "safe haven assets" cannot distinguish the difference between "safe haven currencies" by volatility. The conclusion is clear when using risk resistance, that is, the value-added range, to distinguish.

Gold has appreciated the most, the RMB has also appreciated, and the US dollar seems to be depreciating. The safe-haven ability is clear at a glance. Gold is the king of safe-haven assets, and the RMB is a safe-haven asset, but the consensus is slightly poor.

Safe-haven assets require consensus

How to avoid the investment risks of the epidemic? Vaccines are the best "safe haven assets". Fosun Pharma, which uses American vaccines, has directly reached its daily limit, while Sinovac, which uses Chinese vaccines, is trading sideways. The reason is largely because there is no consensus. To a certain extent, public opinion (not facts) believes that Chinese vaccines are risky and American vaccines are better. The picture shows a comparison of Google searches.

Why do people want to buy gold in troubled times? Because gold has the highest global consensus. If there is no consensus, jade from China will only be considered as stone when it is exported. Similarly, it is difficult to exchange obsidian for steamed buns. Only when there is consensus can it be an asset.

To understand what risks gold can avoid, we need to understand what the price of gold is related to. Obviously, it has nothing to do with cost. What is really related is the supply of US dollars. In troubled times, currency will be over-issued in large quantities, and gold yuan coupons were issued in troubled times. The epidemic is a troubled time. In agricultural society, it is necessary to open warehouses and release grain in troubled times, and in industrial society, grain is currency.

The purpose of Bitcoin design is to avoid "inflation risk". The Bitcoin Genesis Block was established in 2009. That year, the United States released 1 trillion US dollars and China released 4 trillion RMB.

The number of bitcoins is designed to be 21 million. No one can over-issue and plunder, no intermediary bank can go bankrupt at the same time, and no center can be destroyed or disabled. All these moves are aimed at creating a "safe haven asset".

However, after thousands of years of value education, gold has a consensus of nearly 100% , and everyone accepts it, regardless of whether they are rich or poor. Bitcoin now has only 40 million addresses, and the global population is more than 7 billion. Whether in terms of the breadth or depth of consensus, it is still far from enough. However, in my opinion, Bitcoin is undoubtedly better than gold. But it cannot be used in many places, it is still a rat shit in Buffett's eyes, and it is still illegal in many countries. We can wait for it to be perfect.

Bitcoin has a history of 11 years, so let’s compare the past 11 years, using the U.S. dollar as the unit of measurement, to see the risk resistance of the “safe-haven assets” of the U.S. dollar, gold, and Bitcoin.

From the perspective of new safe-haven assets, gold is more resistant to risks than the US dollar, and Bitcoin is more resistant to risks than gold, without exception. Even in 2020, when gold prices rose sharply, Bitcoin was still stronger than gold.

In summary, Bitcoin is a safe-haven asset, and it will take some time to form a greater consensus on the perfect safe-haven asset. However, Bitcoin is not a safe-haven asset defined by volatility in the traditional financial system.

When war, chaos, and expected risks of money release appear, Bitcoin will resonate with gold. When large-scale financial controls prevent withdrawals, Bitcoin will rise, but gold will not. (Special author: Zhao Yutao Editor: Wu Shuo Blockchain Header picture from currency.com)