Bitcoin is fighting again to be a safe haven
The last few days have been a period of geopolitical tensions that has not been known for over a decade. We are obviously talking about the situation in the Middle East. It turns out that Bitcoin can again be seen as a safe haven.
Bitcoin and the spectre of war
Let’s remember what happened Thursday, January 2nd. Iranian General Kasem Sulejmani, the famous commander of the elite unit Al Kuds, and Abu Mahdi al-Muhandis, one of the commanders of the pro-Iran militia in Iraq, were killed late at night at Baghdad International Airport. The attack was quickly confessed by the US authorities.
How did the capital react to this? The price of oil jumped by 4 percent. In a few hours the stock market indexes fell. German DAX by 1.9%, Italian FTSE MIB by 1.3%, Spanish IBEX35 by 1.1%, French CAC40 by 0.7% and London FTSE100 by 0.5%. In turn, American index futures decreased by 1.2-1.4%.
They gained traditional safe harbours. The profitability of American 10-year bonds increased by 6 basis points to 1.81%, while the price of gold jumped by 1.1%. Silver did not do much worse that day.
How did Bitcoin react? It increased by 2.45%. $7335 was paid for 1 BTC that day. Ether, on the other hand, gained 2 percent and for 1 ETH on the market, one had to pay more than $130.
Cryptocurrencies are again beginning to be perceived by part of the market as safe havens. Let us note that over the last few months their rates have been falling. This is probably why investors have decided that it is worth coming back to them now. But does all this make any deeper sense?
Crypto during the war
Some may mock that Bitcoin and its similar assets only grow because speculators think that serious investors consider them to be safe assets. Only that BTC was already growing during the unrest. Suffice it to mention the Cypriot crisis, which revealed the weakness of the banking system there. At that time, the cryptographer passed the mini-bubble, which later turned into large increases.
Why do I need BTC during the war?
Now, let’s think about why someone’s BTC during the war. It’s a more secure asset to store and transport in times of war. Let’s look at it from the perspective of, for example, a wealthy Iranian who has gold bars and cryptocurrencies ones at his disposal. If we remember what happened to the assets of some dictators or politicians who lost power, we can see that they did not let their physical possessions be transported with them during the escape. In order not to look far, it is worth remembering the fall of Viktor Yanukovych, the former President of Ukraine, who left behind his famous villa and numerous “treasures” hidden in it. If he had a BTC, all he had to do was hide the cards with private keys to his briefcase and… run away.
So will the run of Iranian businessmen and politicians on BTC cause a cryptic course jump? It’s real, but more importantly, how the whole global market will behave.
A safe haven
“A “safe haven” asset is a financial instrument that should preserve and even gain in value during periods of economic downturn or risk aversion. These assets are uncorrelated or negatively correlated with the economy as a whole, meaning that they can gain in value in the event of a market downturn”.
– is the definition of a safe harbor
Bitcoin can be considered to be partially detached from the current economy. He is not a child of the central bank, nor is there any public institution behind him. And most importantly, during the first day of the threat of war in Iran, his course began to grow. And it continues to grow. Today, you have to pay over $7550 for 1 BTC. 1 ETH costs nearly $140.
What’s next? And will the BTC be a safe haven? Or more importantly, can we think of it that way? Experts add that we talk about safe haven in the case of instruments which are guaranteed by entities whose credibility is not subject to any discussion. In the case of a cryptocurrencies such an entity is the mining community and in some sense the algorithm on which the blockchain is based. And here it gets complicated, because even the greatest enthusiasts of blockchain solutions have to admit one thing: this market and technology are still new and thus not fully tested.
There is also another side to the coin. The investors’ own approach to the asset. That is, in other words, a psychological aspect. U.S. Bonds are considered safe haven, because today it is very doubtful that this superpower will collapse. If it were to be administratively divided, as was the case with the Roman Empire for example, the bonds would immediately lose their value. However, for the time being this is not the case. And this even if China became the global number one.
Secondly, experienced investors know the history (which, by the way, lies that this one is not worth taking an interest in, because it is impossible to make money on it). They know what survives every financial crisis in the world. That is why they love precious metals so much. Gold and silver have been in price since the dawn of our civilization. They are used in jewellery and are also a symbol of wealth.
To sum up, such financial instruments or objects can be classified as safe haven:
1. which have proven their worth many times during the market turmoil,
2.whose issuing entity will always be solvent.
Does Bitcoin meet these requirements? It’s hard to tell if blockchain or algorithm went bankrupt. Miners… Here the matter is already complicated, although it is doubtful that with this scale of market development the leading cryptocurrencies (Bitcoin, Ether) will collapse overnight.
As far as proving its value during crises is concerned, BTC has already had the aforementioned Cypriot crisis behind it. It has also shown many times that it can function in isolation from traditional markets. Shares on Wall Street grew – Bitcoin could also grow, but also fall on the chart. It is hard to find a clear correlation.
Another thing is that the oldest cryptocurrency was created against the current financial system, but it hasn’t been really dramatic in the last decade on Wall Street or the global war. Not counting the US-China trade rivalry, which – again! – strengthened the BTC course rather than weakened it.
To buy or not to buy – that’s the question?
We know you didn’t expect this to happen, but today no one can say clearly whether BTC is safe haven. This will only be confirmed by future events. If the climate in the Middle East becomes even hotter than it is now (and this is real), and BTC’s price will be rising, it will be possible to consider with greater certainty that a new safe haven of gold and silver has been added for the period of crises.
Subscribe for newsletter
* You will receive the latest news and updates on your favorite celebrities!