Bitcoin: Safe-Haven Asset or Risk Asset?

A few years ago, many in the cryptocurrency community described Bitcoin as a "safe-haven" asset. However, this statement is no longer common today.

Safe-haven assets typically retain or increase their value during times of economic stress, which can include government bonds, major currencies, gold and other commodities, and even blue-chip stocks.

Recently, global tariff disputes and concerning economic reports have led to a significant decline in the stock market, and the price of Bitcoin has also fallen accordingly. This performance does not align with the characteristics of a "safe-haven" asset.

Compared to gold, Bitcoin's performance has also been unsatisfactory. Since the beginning of this year, the price of gold has risen by 10%, while Bitcoin has fallen by 10%. This indicates that cryptocurrencies may no longer be seen as a safe-haven tool.

However, some market observers believe that this situation is not entirely unexpected.

Has Bitcoin Ever Been a Safe-Haven Asset?

Paul Schatz, the founder and president of Heritage Capital, stated that he has never considered Bitcoin as a "safe-haven asset." He believes that the volatility of Bitcoin is too high to classify it as a safe-haven, although investors can and should consider this asset class in their overall asset allocation.

CMC Markets( Germany) Chief Market Analyst Jochen Stanzl believes that Bitcoin is still a speculative tool, rather than a safe-haven asset. He pointed out that safe-haven investments like gold have intrinsic value and will never go to zero, while Bitcoin could drop by 80% during significant adjustments.

Buvaneshwaran Venugopal, an assistant professor in the Finance Department at the University of Central Florida, also stated that cryptocurrencies have never been seen by him as a "hedge tool".

However, when it comes to cryptocurrencies, the situation may not always be as simple as it appears on the surface. There may be different types of hedging assets: one suitable for geopolitical events such as wars, pandemics, and economic recessions; the other for strict financial events such as bank failures or a weakening dollar.

The perception of Bitcoin seems to be changing. In 2024, exchange-traded funds (ETF) issued by major asset management companies will include it, expanding its ownership base, but it may also alter its "narrative."

Nowadays, Bitcoin is more often seen as a speculative or "risk-on" asset, similar to tech stocks.

Adam Kobeissi, the editor of the Kobeissi Letter, pointed out that Bitcoin and the entire cryptocurrency industry are highly correlated with risk assets, and they often exhibit inverse fluctuations with safe-haven assets like gold (.

He further stated that there is a lot of uncertainty about the future of Bitcoin given the "increased participation of institutions and leverage," and that the "narrative has shifted from Bitcoin being seen as 'digital gold' to a more speculative asset."

Venugopal believes that the acceptance by traditional financial giants does not mean that Bitcoin has become safer. In fact, it means that Bitcoin is becoming more like other assets that institutional investors prefer to invest in. It will be more influenced by the conventional trading and withdrawal strategies used by institutional investors.

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The Dual Nature of Bitcoin

While few deny that Bitcoin and other cryptocurrencies are still subject to significant price volatility, this may not be the right focus of concern.

Crypto is Macro Now author Noelle Acheson points out that safe-haven assets are always long-term assets, and short-term fluctuations are not the determining factor of their characteristics. The key question is whether Bitcoin can maintain its value against fiat currencies in the long term, and it has proven this.

Acheson believes that Bitcoin has always had two key narratives: it is a short-term risk asset sensitive to liquidity expectations and overall sentiment; at the same time, it is also a long-term store of value. It can be both.

Another possibility is that Bitcoin may be a safe-haven asset for certain events, but not for others. Gold can serve as a hedge against geopolitical issues like trade wars ), while both Bitcoin and gold can act as hedges against inflation.

Some observers believe that Bitcoin acted as a safe-haven asset during the banking crisis in March 2023. At that time, the price of Bitcoin rose by about 35% within a week.

However, not everyone agrees that Bitcoin is a hedge against inflation. A series of events in the crypto industry in 2022 greatly undermined this argument.

Do not overreact

Despite the recent pullback, many fundamentals of Bitcoin remain positive: a supportive policy environment for cryptocurrencies, participation from institutional investors, and growth in cryptocurrency adoption.

The biggest question facing market participants is: "What is the next major catalyst driving the rally?" This is also the reason for market pullbacks and consolidations: searching for the next major catalyst.

Acheson pointed out that since macro investors began to view Bitcoin as a high-volatility, liquidity-sensitive risk asset, it has behaved like a risk asset. Moreover, short-term traders usually determine the final price, and if they are exiting risk assets, we will see Bitcoin's weakness.

The overall market is currently struggling. The reemergence of inflation concerns and economic slowdown has severely affected expectations, which has also impacted the price of Bitcoin.

Given the current economic outlook and the dual nature of Bitcoin as a risk asset and a long-term hedge asset, its performance may still hold uncertainty. Whether Bitcoin can become the long-term argument for digital gold also depends on the collective expectations of investors.