Is Bitcoin a safe haven asset? | Introduction to Blockchain in Plain Language 286

Produced by | Vernacular Blockchain (ID: hellobtc)

Recently, the safe-haven properties of Bitcoin have been questioned by everyone, and the truth that was previously believed by everyone has suddenly been shattered. On March 22, the People's Bank of China's WeChat official account also published a risk warning and popular science article stating that "Bitcoin is a safe-haven asset", which is a false proposition.

Let's first look at the definition of safe-haven assets. Safe-haven assets refer to a type of asset whose price fluctuates little as the market changes. For example, gold, US dollars and other fiat currencies, as the market fluctuates very little, are not easily affected by factors such as politics and war, and can avoid the impact of depreciation to the greatest extent. To put it bluntly, it is to ensure that assets do not depreciate when there are risks. So, why did everyone think that Bitcoin has safe-haven properties before, and how did it come about? How did it break down recently?

01
The origin of safe-haven properties

The main reason is that in the past, whenever there was a financial crisis, political unrest or war around the world, the price of Bitcoin would rise to a certain extent. Here are a few simple examples:

In 2012, during the Greek debt crisis, people rushed to banks to withdraw their deposits. A small number of people discovered that Bitcoin was in the previous cycle, and began to enter the market for risk aversion, causing the price of Bitcoin to continue to rise, driving more people to enter the market. From March to April 2013, in one month, Bitcoin rose from $40 to $266, more than six times. Since then, Bitcoin has been associated with "risk aversion".

In February 2019, Venezuela’s economic collapse and political turmoil caused Bitcoin trading volume to continue to rise, from 300 BTC per week in 2018 to 2,500 BTC per week in 2019.

On January 3, 2020, a U.S. drone launched several missiles, accurately killing Iran's second-in-command, Major General Soleimani. This incident attracted the attention of the world and caused a violent reaction in the financial market. Gold and crude oil soared, U.S. stocks plummeted, and Bitcoin rebounded from $6,800 to $8,000.

It can be seen that whenever a financial crisis, political turmoil or local war breaks out, some people will start to think about ways to preserve their assets, and buying Bitcoin becomes the choice of some people. However, due to the influence of the above-mentioned similar events, some media and influential individuals have summarized the relevant rules and started to promote the idea that Bitcoin has the property of hedging.

02
The safe-haven property was “destroyed”

So, how did the safe-haven property of Bitcoin, which has always been expected by the industry to eventually become "digital gold", be "destroyed"?

In the recent 312 incident, affected by the epidemic, Bitcoin has experienced a cliff-like decline. Instead of playing the role of a safe-haven asset, it has become the most depreciating asset. The reason for this is that Bitcoin has risen too much before the New Year, and investors who invest in Bitcoin may also be investing in the stock market and other financial assets, choosing to sell Bitcoin to relieve the pressure of other financial assets, and the chain reaction of leveraged contracts has led to a further decline in the price of the currency.

However, it is not just Bitcoin that is performing like this. The entire financial market is experiencing the baptism of the epidemic. Gold, which is also a safe-haven asset, has continued to fall in the following days.

03
summary

At present, Bitcoin is more like a risky asset rather than a safe-haven asset, mainly for two reasons:

1. Bitcoin has only existed for a short time and is still just a social experiment with the possibility of failure. Compared with the thousands of years of history of gold, the consensus is still too weak. When a real disaster occurs, people will still choose gold to protect their assets instead of Bitcoin.

2. The volatility is so great that sometimes the volatility in one day may be as great as the volatility of gold in one year.

Of course, there is another saying that the safe-haven property is relative. Bitcoin has never emphasized its safe-haven properties from the beginning, but rather its anti-inflation and anti-fragility.

So, is it possible for Bitcoin to become a safe-haven asset like gold? In the long run, it may be possible. Bitcoin itself does have similar properties to gold (some may be better). Over time, when the volume of Bitcoin is large enough and the volatility decreases, it may become a new safe-haven asset.

Bitcoin's safe-haven properties have been shattered. Do you still think it's a good bet? Feel free to share your views in the comments section.

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"Disclaimer: This series of content is only for blockchain science popularization and does not constitute any investment advice or suggestions. If there are any errors or omissions, please leave a message to point them out. "