Where is the safe haven you promised me? Why are you so scared, Bitcoin?

Author | Qin Xiaofeng

Produced by | Odaily Planet Daily

The stock market suffered a heavy fall, but Bitcoin did not go in the opposite direction

Affected by the spread of the epidemic, global stock markets and oil prices fell sharply yesterday, experiencing a "Black Monday."

During the day, Asia-Pacific stock markets suffered heavy losses, with South Korea's Composite Index falling 3.87%, the biggest drop in more than 16 months; last night, U.S. and European stocks also suffered panic sell-offs: the three major U.S. stock indices (Nasdaq, Dow Jones, S&P 500) closed down more than 3%, with the Dow Jones recording its biggest one-day drop in two years; European stocks fell collectively, with the Italian stock market falling more than 5%, and the German and French stock markets also falling more than 4%; in the commodity market, both U.S. oil and Brent crude closed down nearly 4%.

The Japanese stock market, which was closed yesterday, also saw a decline today, with the Nikkei 225 index opening with a 4.48% drop.

(U.S. stock market opening trend chart)

Compared with the bleak stock market, gold is sought after by investors as a safe-haven asset. According to data from the New York Mercantile Exchange, gold futures continued to rise yesterday, approaching the $1,700/ounce mark and then falling back, hitting a 7-year high of $1,691.7; the cumulative increase in gold prices this year has reached 8.3%, and it has risen by 5.3% in the past two weeks alone.

Gold Price Chart

Compared with the strengthening of gold prices, Bitcoin, once considered an "emerging safe-haven asset", has not performed well recently.

BitUniverse data shows that in mid-February, the price of Bitcoin once broke through the $10,000 mark and reached a high of $10,500 on February 13; the price then began to decline, once falling to $9,320; in the past two weeks, the price has remained in a wide range around $10,000, and the upward potential is limited.

Especially in the past two days, the stock market has fallen and the gold price has risen, but Bitcoin has not risen sharply as investors expected to play a safe-haven role. According to BitUniverse data, Bitcoin has fallen by more than 5% in the past two days, while other altcoins have continued to fall, which seems to be a precursor to a sharp drop.

Can Bitcoin really be a safe haven?

Although there is still a lack of long-term data support for Bitcoin’s “safe-haven” properties, it has long left this “impression” on the public.

The reason why most people hold this view is due to the following considerations: the total amount of Bitcoin is fixed, and it is a deflationary model, and it is scarce like gold; both have experienced a surge in demand in extreme economic environments; gold has a safe-haven property, so Bitcoin also has a safe-haven property.

Such considerations seem reasonable, but they ignore some issues.

First, the hedging property requires that the volatility of the asset is low. The first requirement of hedging is to maintain value (not increase value), and precious metals such as gold and silver perfectly meet the traditional financial hedging needs. In contrast, the volatility of Bitcoin is very large, even exceeding that of traditional stocks.

"Bitcoin rose three times in the first half of 2019 and fell nearly 50% in the second half. Its volatility is absolutely the highest in the world. No fund manager can invest in Bitcoin as a safe-haven asset. Even if they do, it will be an alternative investment." Li Lianxuan, senior researcher at the OK Group Research Institute, told Odaily Planet Daily.

Second, Bitcoin has only been around for a short time, and its impact on traditional finance is far less than imagined. Currently, the total market value of the entire crypto market is less than $300 billion, and the market value of Bitcoin is only over $170 billion. The crypto market is too small to bear the risk aversion needs of the massive amount of funds in traditional finance.

“For mainstream institutions in the global financial circle, gold is a mainstream recognized safe-haven asset. BTC is still a safe-haven asset recognized by the currency circle. Although it is slowly being recognized by some mainstream finance, its share is still very small. A large amount of funds have not poured into the digital currency field. This is a long process and cannot be achieved overnight.” said Li Zhe, partner of Clipper Coin Capital and Conflux community ambassador.

However, OKEx analyst Yansong believes that it is inappropriate to simply classify Bitcoin as a "non-safe-haven asset". It is more like the intersection of safe-haven assets and risky assets.

On the one hand, Bitcoin does have a certain hedging demand, which can be sensed from a series of events last year. In the first few weeks of June last year, Bitcoin and gold both rose sharply due to the trade war and other reasons; the "US-Iran crisis" at the beginning of this year also prompted Bitcoin and gold to rise again.

Bitcoin moved in line with traditional safe haven assets in these four events in 2019

"Bitcoin's safe-haven properties are more reflected in its safe-haven nature when a country's legal currency collapses or when traditional assets are in danger of security crisis caused by war," Blockvc James told Odaily Planet Daily.

On the other hand, Bitcoin is still immature as a safe-haven asset and is prone to divergence in the medium term. In June last year, after hitting a high of $14,000, Bitcoin fell 30% to $10,000. However, gold in the same period has always remained above $1,500 per ounce. This also shows that Bitcoin is not a mature macro asset class.

Bitcoin price and gold price (orange/blue) and their 30-day correlation (purple curve below)

In addition, "Which international events does Bitcoin respond to" shows randomness, and "risk aversion" does not work every time. For example, recently, Bitcoin has not been sought after like gold, which is also related to the emotions of traders on the floor and the degree of market participation.

“Saying that Bitcoin is a safe haven asset is a paradox because it is a very high-risk asset class.” EToro CEO Yoni Assia previously said,

“Bitcoin can be used as an alternative store of value, but it is not a safe haven asset.”

How will the market outlook be?

After the short-term "safe-haven" attribute expires, the most concerning issue for cryptocurrency investors is where will Bitcoin and other cryptocurrencies go?

Odaily Planet Daily interviewed several analysts on this issue. Overall, they are still optimistic, but there are also downside risks in the short term, so investors should control their positions.

Li Lianxuan said that due to the expected Bitcoin halving, the upward trend of Bitcoin will remain the main trend in the next two to three months. "In any financial market, the trend of asset prices is always composed of a series of peaks and troughs, and it is impossible to rise in a straight line all the time. According to Dow Theory, the main trend of Bitcoin is still an upward trend. Yesterday, Bitcoin fell slightly, which can only prove that the Bitcoin market has entered a secondary trend or a short-term trend. If it is a secondary trend, Bitcoin may pull back by about 1/3 or 2/3. If it is a short-term trend, the decline will end in one or two days. However, I think users of the currency market do not need to worry about how large the pullback is at present, so our investment focus is on the main trend."

Yansong believes that the short-term has obviously taken the lead in the past two days, and the buying orders are seriously insufficient. The price of Bitcoin may test the previous support level of $9,150 and the low of $9,350 on February 19. However, the daily MA60 near $8,900 is still moving upward, and it is difficult to see the possibility of the price falling below this level.

“The RSI on the daily chart has fallen below the 50 midline, which is not a positive signal. The RSI on the hourly and daily charts are far from their MA50, showing a weak signal. In addition, from the OKEX trading big data, we can see that the BTC long-short position ratio is still above 2.2, and the current long position ratio is higher, which makes us more concerned about the threat posed by the downward trend of Bitcoin.”