Years ago, many within the cryptocurrency space referred to Bitcoin as a “safe-haven” asset. That sentiment has dwindled over time.
A safe-haven asset typically holds or appreciates in value during economic turmoil. This can include government bonds, currencies like the US dollar, commodities such as gold, or esteemed stocks.
Currently, the unfolding global tariff conflict initiated by the United States, along with concerning economic data, has caused stock markets to plummet, and Bitcoin has followed suit—contrary to the presumed behavior of a “risk-off” asset.
In fact, Bitcoin has lagged behind gold in this current climate. As noted recently, while gold prices have risen by about 10%, Bitcoin has seen a decline of around 10% since the beginning of the year, signaling a shift in perception about its role as a safe haven. (Bitcoin’s value has dropped further even this past week.)
Still, some analysts suggest that this trend was somewhat anticipated.
### Has Bitcoin Ever Truly Been a Safe Haven?
“I have never considered Bitcoin a ‘safe haven,'” stated an expert from a financial advisory firm. “The volatility of Bitcoin is far too significant to classify it as such, although I do believe that investors should have a portion of this asset class in their portfolios.”
Another analyst echoed this sentiment: “Bitcoin remains a speculative tool for me, not a safe haven. Unlike gold, which retains intrinsic value, Bitcoin’s worth can plummet by 80% during major downturns. I wouldn’t expect that from gold.”
Some educators in finance agree, arguing that Bitcoin, among other cryptocurrencies, has never genuinely functioned as a safe haven.
However, the dynamics surrounding cryptocurrencies can often be more complex than they initially seem.
One could posit that there are varying types of safe havens: one category for geopolitical crises such as wars or pandemics, and another for financial disturbances like bank failures or a declining dollar.
The perception of Bitcoin seems to be evolving. Its incorporation into exchange-traded funds from significant financial institutions expanded its ownership and may have altered its overall perception.
Now, it’s increasingly viewed as a speculative or “risk-on” asset, akin to tech stocks.
“Bitcoin, along with other cryptocurrencies, has become closely linked with high-risk assets, often moving inversely to traditional safe-haven assets like gold,” remarked a noted editor in the field.
He added that there remains considerable uncertainty surrounding Bitcoin’s trajectory, noting an increase in institutional interest and leverage which has contributed to a “narrative shift” from viewing it as “digital gold” to regarding it as a more speculative venture.
The entry of traditional finance giants doing business in Bitcoin has led some to believe that this will bolster its status as a safe haven, but that’s debatable. “The influx of large corporations into Bitcoin doesn’t equate to increased safety for the asset. Rather, it suggests that Bitcoin is becoming more similar to any other asset institutional investors typically engage with,” one expert pointed out.
Consequently, Bitcoin is likely to be influenced by the same trading strategies and risk-reduction measures that apply to other volatile assets.
### Bitcoin’s Complex Nature
It’s widely acknowledged that Bitcoin and other cryptocurrencies continue to experience substantial price volatility, a trend exacerbated by the recent spike in retail interest tied to the memecoin phenomenon, which was described as “one of the largest onboarding events for crypto in history.” However, this may not be the primary focus.
“Safe havens are inherently long-term assets, meaning that short-term price swings don’t significantly affect their classification,” said the author of an insightful newsletter.
The critical inquiry remains whether Bitcoin can preserve its value over the long haul compared to fiat currencies, a question it has generally managed to address positively. “The evidence supports its credibility; over virtually any four-year period, Bitcoin has outperformed gold and US equities,” the author highlighted, adding that Bitcoin embodies two essential narratives: it functions as a short-term speculative asset sensitive to liquidity conditions and sentiments, while also serving as a long-term store of value.
Another angle to consider is that Bitcoin could function as a safe haven under certain circumstances but not others.
“I regard Bitcoin as a safeguard against issues within traditional finance,” said a digital assets research head. For example, during the fallout from the failures of the Silicon Valley Bank and Signature Bank a couple of years ago, “but in some geopolitical contexts, it may act more like a risk asset,” he observed.
Gold can protect against geopolitical disturbances, such as trade conflicts, while both Bitcoin and gold serve as hedges against inflation. “Thus, each is a valuable element in a portfolio,” he concluded.
Some investors contend that Bitcoin acted as a safe haven during the turmoil surrounding the SVB and Signature bank runs in March 2023. Following the collapse of SVB, Bitcoin’s price surged significantly within a week.
One expert does not view Bitcoin as an inflation hedge, citing the events of 2022 when several crypto companies failed, which severely undermined that argument.
Could it serve as a safeguard against the US dollar and treasuries? “That’s plausible, but considering such scenarios can lead to grim reflections,” he remarked.
### No Need for Panic
An analyst emphasized that short-term market fluctuations often lack significant long-term implications. Despite the current downturn, many fundamentals for Bitcoin remain positive: supportive US governmental attitudes, the announcement of a Bitcoin Reserve, and an uptick in crypto adoption.
The pressing question for investors is: “What will be the next major driver for this market?” Many current trends relate to a search for future catalysts.
“Since macro investors have started to frame Bitcoin as a volatile, liquidity-sensitive asset, it has behaved accordingly,” remarked another commentator, further noting that often it’s short-term traders who establish the prevailing market price. “If they pivot away from riskier investments, Bitcoin will likely weaken.”
Overall market conditions are challenging, with fears of renewed inflation and an economic slowdown heavily impacting expectations, which in turn affects Bitcoin’s pricing. Given this context, it’s surprising that Bitcoin hasn’t dipped further.
Another academic mentioned that since 2017, Bitcoin hasn’t served as a short-term safe haven. The proposition that Bitcoin is digital gold, due to its 21 million supply cap, holds only if a significant number of investors expect its value to appreciate over time, which may or may not be the case.