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Over the years bitcoin has frequently been touted as a “safe haven” and the narrative has only gotten stronger in the past weeks. Apparently the idea won’t die, despite its legendary volatility and reports of thefts and hacks every now and then. So is it a safe haven or not? CoinFalcon breaks down the facts so you can decide for yourself.
What is the Bitcoin Safe Haven Theory?
The bitcoin safe haven narrative is a tale that is almost as old as Bitcoin itself. In simplest terms, it states that investors will turn to stable, non-sovereign assets and currencies in order to safeguard their wealth during times of global financial crises and geopolitical turmoil.
For those that believe that bitcoin falls into the safe-haven assets category, it won’t come as a mere coincidence that its price has experienced impressive gains throughout the chaos that we’ve witnessed in recent times. We examine some of these moments of economic uncertainties and political instabilities in relation to the price performance of bitcoin at the time.
The Hong Kong Protests
Let’s start with the Hong Kong protests that began sometime in March 2019. Barely three months later, bitcoin was trading at a premium of over US$150 (HK$ 1170) in Hong Kong.
Analysts pointed out that this was due to the heavy demand for bitcoin in the city-state following its spate of violent protests over a controversial extradition bill.
Hong Kong Bitcoin exchanges charged hefty premiums during the protests |
The Venezuela Inflation Crisis
Coincidence? What about the case of Venezuela, where its citizens turned to bitcoin to protect against the country’s drowning inflation. Things had gotten so bad that a cup of coffee jumped from 0.75 bolivars to 2,800 bolivars within a 12 month period - an increase of over 370,000%. This was in addition to the climbing crime rate and unaffordability of necessities such as toilet paper and medicine. In response, Venezuelans didn’t just use the digital currency for payments and remittances, but even for donations to charity organizations.
Needless to say, bitcoin trading in the region soared and was setting new all-time high records as the weeks went by.
Bolivar to Bitcoin volumes hit new all-time highs in 2019 |
Source: Coin Dance
The U.S - Iran Fiasco
Enter 2020 and we’re greeted with the news of rising tensions between the United States and Iran after the former assassinated an Iranian high-ranking military official. Amid reports of both countries courting war and Iran’s subsequent retaliation through a missile strike at an American base, bitcoin was feverishly rising in tandem with oil and gold.
It didn’t come as a surprise that oil prices skyrocketed following news of the conflict. Global oil production would definitely be impacted if the situation had escalated to a full-scale war between the U.S. and Iran. But what’s interesting here is that bitcoin rose alongside gold, the world’s leading safe-haven asset. There is no direct correlation between bitcoin and gold so its 21.7% price increase during the period was construed by many as a definitive sign that bitcoin is indeed considered a safe-haven asset during the wave of uncertainties.
The crypto Twitter community wasted no time in tracking the price of bitcoin before, during, and after the military tensions.
Bitcoin price chart during the U.S.-Iran conflict and resolution |
Source: Messari.io Twitter
The Coronavirus Catastrophe in China
The deadly virus has been trending across some media outlets since late in December, but it wasn’t until Wuhan, Central China’s most populous city, was placed under quarantine on 23 January that many people started to fully realize the direness of the situation. Now China is home to the world’s largest bitcoin exchange (Binance) as well as the world leader in bitcoin mining, controlling over 70% of the Bitcoin network’s collective hash rate. As such, it’s safe to say the country is a significant driver of bitcoin.
Let’s look at the likely scenario that may have unfolded since the coronavirus outbreak. Many Chinese nationals would have opted to leave the country as soon as possible, but it’s never that easy to just up and leave. They need to be able to fund their relocation and also maintain easy access to their money so they can stay abroad for as long as is necessary. Unfortunately, they can’t easily fly out with large bales of cash or stacks of gold bullion.
So where do they turn to? Bitcoin. With this digital currency, all you need to move your money around and access it anywhere in the world is your crypto wallet keys. No additional luggage, no asset declarations, and certainly no lengthy back and forths to access your funds.
Unsurprisingly, bitcoin has risen in price every day since January 23, gaining nearly 10% in less than a week. Other cryptocurrencies even followed suit, with Ethereum, Bitcoin Cash and XRP all recording impressive gains since the outbreak.
Bitcoin price has risen almost 10 % since Wuhan was quarantined on Jan 23, 2020 |
As of the time of writing, bitcoin is trading at $9365 on CoinFalcon amid fears that the coronavirus is now spreading globally; this figure represents one of its highest levels in the last three months.
The Argument of the Naysayers
Despite these correlations, those who say bitcoin is no safe haven asset have pointed out that there is little research to actually support the theory. They argue that since bitcoin is a non-sovereign currency and an uncorrelated asset, its market movements are impartial to events of geopolitical or financial turbulence. Instead, its driving force comes down to positive developments within the cryptocurrency industry, such as technological advancements, favourable regulations, and to some extent, the whims of bitcoin whales.
There’s even those who believe the bitcoin safe haven theory is simply a tool to manipulate prices to the whims of bitcoin whales.
Peter Schiff resumes his badgering of bitcoin | Source: Twitter
What’s your verdict?
Is bitcoin your go-to safe haven during these chaotic times or do you think the number one cryptocurrency should not even be considered a safe-haven in the first place? Either way, CoinFalcon remains one of the easiest places to buy bitcoin, ethereum, litecoin, xrp and other cryptocurrencies. Buy crypto with your credit card or through bank transfer and track your investments directly from the CoinFalcon App. Sign up for your free account and get the future of money in your hands today.
Credits to the author.
Ezekiel holds a bachelor’s degree in Accounting and has a keen interest in disruptive financial technologies. His curiosity drew his attention towards Blockchain technology and cryptocurrency markets.