Is Bitcoin a safe-haven asset as it links the global asset crash?

Recently, the international economy has been sounding the alarm, the U.S. stock market has plummeted, and the Dow Jones Industrial Average has fallen 4,000 to 5,000 points from its highest price; the A-share market has returned to below 3,000 points on March 9; crude oil opened with a 31% drop, and the latest oil price has fallen below $30.

However, at this time, Bitcoin, known as "digital gold" and regarded as a safe-haven tool by people in the currency circle, fell no less than other financial assets.

Doctor Doom Nouriel Roubini tweeted that last week, US and global stock markets fell 2-3%, and Bitcoin fell 8% in the last day, far more than global stock markets. This is another piece of evidence that Bitcoin is not a good hedging tool during risk aversion. During risk aversion, it actually fell more than risky assets.

We should also take this opportunity to reflect on whether Bitcoin is really a safe-haven asset or just wishful thinking among people in the cryptocurrency world.

1. Let’s first take a look at what safe-haven assets are?

Safe-haven assets refer to a class of relatively stable assets whose prices will not fluctuate too much with market changes, such as gold, the US dollar, etc.

As the United States has entered a monetary easing cycle in the past two years, the dollar has continued to depreciate, and the dollar's share of global foreign exchange reserves has continued to decline. It is a general consensus in the market that the strong dollar pattern is on the verge of a turning point, and the dollar's safe-haven function has gradually weakened.

Gold has always been widely regarded as a high-quality safe-haven asset. Whenever a war or geopolitical event occurs, it often stimulates investors' safe-haven buying demand, causing gold prices to rise. In peacetime, whenever there is high inflation and the risk of currency depreciation increases, gold prices will also rise.

2. What are the characteristics of gold as a safe-haven asset?

1. Small fluctuation: The gold price is relatively stable and not prone to sudden rises or falls. Even if it rises, it is a steady rise. For example, gold has risen by 30% since March last year. The daily fluctuation of gold price is 20-30 US dollars. When the market is big, the fluctuation is less than 100 US dollars, and the daily fluctuation range is 1.5-2.5%.

2. Scarcity of resources: The scarcity of gold reserves will be the dominant factor in determining its price trend. Gold is a non-renewable resource. The more you dig from nature, the less it will be. No one can create real gold out of thin air at will. It is not like paper money, which can be created out of thin air.

According to statistics from the World Gold Council, as of 2017, the world's proven gold reserves were 244,000 tons, of which about 190,000 tons have been mined, accounting for 78%, and about 54,000 tons of unmined gold, accounting for 22%. Based on the current mining volume and growth rate, the unmined gold reserves can only last for about 10 years. Gold will remain a scarce resource in the foreseeable future.

3. Value preservation: For example, the current gold price is 300 yuan/gram, and 300 yuan can buy 100 loaves of bread, that is, 1 gram of gold can buy 100 loaves of bread. With price inflation, the purchasing power of 300 yuan of legal tender has decreased, and it can only buy 50 loaves of bread. But with price inflation and currency depreciation, gold will also appreciate, and the purchasing power of 1 gram of gold is still 100 loaves of bread. The meaning of value preservation is that you may not make any money after buying, but you will definitely not lose money. We call it capital preservation. You will definitely not lose money. This is called risk aversion.

4. Strong consensus: The world's hard currency. Although gold is rarely used as a small payment tool in daily life, it can be converted into legal tender for payment at any time. The International Monetary Fund and the Bank for International Settlements still list gold as an acceptable international settlement tool.

3. Compared with gold’s characteristics as a safe-haven asset, what about Bitcoin?

1. Drastic volatility: The biggest feature of digital currency is its large volatility, especially since it is still in its early stages of development and regulation is not standardized. Large ups and downs are common. For example, the sharp drop on March 8 saw a daily volatility of more than 10%. When the market starts, a daily volatility of 30% is also normal.

2. Scarcity of resources: The total number of bitcoins issued is 21 million, and there will be no more. The Bitcoin blockchain reward is halved every four years, and by 2140, all bitcoins will be mined. It is said that when Bitcoin was designed, the total global economy was compared, and the upper limit of 21 million was estimated based on the current global economic level. Some people also say that this is because all the gold in the world melted together to form a cube with a side length of about 21 meters.

3. Preservation of value: In 2009, Bitcoin was created to hedge against the risk of continuous depreciation of legal currency.

In 2009, 1 USD could buy 1,300 Bitcoins; in 2011, 1 USD could buy 1 BTC; in 2013, 900 USD could buy 1 BTC; in 2017, 2,000 USD could buy 1 BTC; in 2020, 8,000 USD could buy 1 BTC. The price has increased by tens of millions times.

In the long run, it is guaranteed to maintain its value; in the short run, it is not guaranteed to maintain its value, because the volatility is huge, and the probability of loss is quite high.

In the short term, the current trend is not in sync with gold. It is falling more than the stock market, with inflation and currency depreciation, and BTC is also falling. In the short term, it has no hedging function.

4. Strong consensus: Currently, the Bitcoin community has more than 1.7 million members, while there are only tens of millions of cryptocurrency players worldwide. Most countries have not yet clearly determined the legality of Bitcoin, but are taking a wait-and-see attitude. Some countries have indirectly agreed to the legal use of Bitcoin by implementing some regulatory oversight. Countries such as China, Russia, Vietnam, Bolivia, Colombia, and Ecuador are still saying "no" to Bitcoin. This is also the reason why many people do not dare to buy Bitcoin as a safe-haven asset. However, the consensus of Bitcoin has crossed from 0 to 1, and is now gradually becoming stronger.

summary:

1. Compared with the world's mainstream safe-haven asset, gold, Bitcoin is considered a safe-haven asset because its resources are scarce, its total amount remains unchanged, and it maintains its value in the long run, with obvious appreciation. However, it is also considered to have no safe-haven function because of its large volatility and lack of consensus, and it does not maintain its value in the short term.

2. There is insufficient consensus on Bitcoin now, and the trading depth is too small to accept large amounts of funds coming in for risk aversion. It is too early to call it a safe-haven asset.

3. In the context of the global economic downturn, if assets leave the high-priced market, they need to enter a market with undervalued value. Bitcoin is one of the assets that can be selected. (Rossa Block)

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