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Has Bitcoin Become A Bona Fide Safe Haven?

Bitcoin

Has bitcoin officially earned its stripes as the new safe haven from economic and financial crises? After all, the leading cryptocurrency, often heralded as the new “digital gold”, has lately been playing gold more than gold itself during the ongoing crisis at a time when the real thing has only been lazily traipsing up the charts. At least one Wall Street punter thinks so...

On Tuesday, Bleakley Advisory Group’s Peter Boockvar, told CNBC’s Futures Now that bitcoin has become one of the few hideouts left standing in a market that has suddenly turned decidedly bearish amidst an escalating trade crisis.

It’s about a month since President Trump’s administration effectively put paid all hopes for a trade deal with Beijing after hiking tariffs on China’s imports from 10 percent to 25 percent. During that time-frame, bitcoin zoomed 55 percent up to a 14-month high of nearly $9,000. Since then, the cryptocurrency has pulled back quite a bit but at $7,700 remains 33 percent up from a month-ago-levels.

That kind of performance has earned the respect of Boockvar, a noted gold bull and crypto perma-bear, though he claims he only watches bitcoin as an indicator and not because he intends to build any positions.

In contrast, gold’s performance has been far less impressive, virtually indifferent in the initial stretch before finally turning up the heat to rally 4.4 percent over the past week.

(Click to enlarge)

Source: TradingView

(Click to enlarge)

Source: APMEX

Bitcoin remains an unproven safe haven

There’s certainly a case to be made about bitcoin being a genuine contender to gold’s hegemony as the preferred safe haven asset and store of value. Investors frequently make the rotation from stocks to assets and securities perceived as being better stores of value, including precious metals, Treasuries and, increasingly, the U.S. dollar.

But for the first time in living memory, investors seem to be struggling to find a quiet port where they can park their money until the storm is over. Even U.S. Treasuries, once regarded as the leading safe haven asset par excellence, have lost some of their shine. Take the case of the last financial crisis about a decade ago.

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Everybody knew that the crisis was mainly triggered by financial impropriety by U.S. mortgage firms. Yet, investors worldwide still flocked into the U.S. market en masse with net purchases of U.S. assets hitting half-trillion dollars during the final three months of 2008-- three times more than the preceding nine months combined. Sure, part of the colossal buyouts was driven by institutional investors hoarding greenbacks to fund their needs after interbank markets seized up. Much of its was simply due to fear.

But U.S. Treasuries “flight to safety” status has increasingly come under threat. Part of this is due to the increased weakness by the U.S. government’s credit rating as well as a more positive correlation with equities as per T. Rowe Price.

Meanwhile, a dovish Fed has been positive for gold, but not positive enough. Falling Treasury yields have dragged down the dollar, but not nearly enough to make gold the attractive safe haven asset of yore. A relatively strong greenback continues to weigh on gold.

(Click to enlarge)

Source: CNBC

Against such a backdrop, investors may increasingly be turning to bitcoin more and more.

But here’s the rub with the idea of bitcoin being a safe haven:

First off, the correlation between bitcoin and equities has been severally studied and found to be weak at best. Bitcoin either shows no correlation or is negatively correlated to stocks thus making its case as a somewhat safe asset during times of turbulence. This could be due to the fact that bitcoin lacks well-established liquidity gateways that can facilitate easy flows into the asset when other markets fall out of favor. This is a problem that could be overcome with time.

But by far, bitcoin’s biggest attraction—high volatility—remains its biggest knock on its claim as a safe haven. With a market cap roughly 50x smaller than the total value of above-ground gold, bitcoin is, unsurprisingly, several magnitudes more volatile than gold. Not to mention the fact that it lacks gold’s intrinsic value.

Nevertheless, the fact that bitcoin still has hurdles to overcome before earning its stripes as a genuine safe haven does not preclude it from this argument. It’s just that digital gold will have to share that mantle with its 3,000-plus-year-old cousin.

By Alex Kimani for SafeHaven.com

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