Under the shadow of the trade war, the status of Bitcoin (BTC) as a safe-haven asset is being questioned.

Source: Cointelegraph Original text: "Under the shadow of the trade war, Bitcoin (BTC) is facing doubts about its status as a safe-haven asset"

A few years ago, many people in the cryptocurrency community described Bitcoin (BTC) as a "safe-haven" asset. Nowadays, this statement is less common.

Safe-haven assets are those that can maintain or increase in value during times of economic stress. They can include government bonds, currencies such as the US dollar, commodities like gold, and even blue-chip stocks.

The global tariff war triggered by the United States is escalating, along with unsettling economic reports, leading to a stock market crash, and Bitcoin has also fallen as a result — something that shouldn't happen to a "safe-haven" asset.

Compared to gold, Bitcoin's performance has also been less than satisfactory. The Kobeissi Letter pointed out on March 3rd: "Since January 1st, gold prices have risen by +10%, while Bitcoin has fallen by -10%. Cryptocurrencies are no longer viewed as safe-haven assets." (Last week, Bitcoin's decline was even greater.)

But some market observers said that this is actually not surprising.

From December 1 to March 13, the price trend charts of Bitcoin (white) and gold (yellow) Source: Bitcoin Counter Flow

Was Bitcoin ever a safe-haven asset?

Paul Schatz, founder and president of the financial consulting firm Heritage Capital, told Cointelegraph: "I have never viewed Bitcoin as a 'safe-haven' asset. The price volatility of Bitcoin is too great to classify it as a safe-haven, although I believe that investors can and should allocate to such assets."

Jochen Stanzl, Chief Market Analyst at CMC Markets (Germany), told Cointelegraph: "For me, Bitcoin is still a speculative tool, not a safe-haven asset. Safe-haven investments like gold have intrinsic value and will never go to zero. Bitcoin can drop 80% during a significant pullback. I don't think gold will experience such a situation."

Assistant Professor Buvaneshwaran Venugopal from the Finance Department of the University of Central Florida told Cointelegraph: "In my opinion, cryptocurrencies, including Bitcoin, have 'never been a safe haven asset.'"

But things are not always as simple as they seem on the surface, especially in terms of cryptocurrency.

We can think of different types of safe-haven assets: one that is safe against geopolitical events such as wars, pandemics, and recessions, and the other is a safe haven against purely financial events such as bank failures or a weakening dollar.

People's views on Bitcoin may be changing. In 2024, large asset management companies like BlackRock and Fidelity are launching ETFs that include it, expanding their base of holders, but this may also change its "narrative".

Today, it is more often regarded as a speculative or "risk" asset, similar to tech stocks.

Adam Kobeissi, the editor of the Kobeissi Letter, told Cointelegraph: "Bitcoin and the entire cryptocurrency market are highly correlated with risk assets, and their trends often move in the opposite direction of safe-haven assets like gold."

He further pointed out that there are many uncertainties regarding the direction of Bitcoin under the circumstances of "more institutional participation and leverage", and there has also been a "narrative shift from 'digital gold' to a more speculative asset."

People might think that being accepted by traditional financial giants like BlackRock and Fidelity would make the future of Bitcoin more secure, thereby supporting the narrative of it being a safe haven—but according to Venugopal, that is not the case:

"The fact that large companies are investing in Bitcoin does not mean it becomes safer. In fact, it means that Bitcoin is becoming more like other assets that institutional investors prefer to invest in."

Venugopal added that it will be more influenced by conventional trading and withdrawal strategies used by institutional investors. "If there is any change, Bitcoin is now more correlated with risk assets in the market."

The dual properties of Bitcoin

Few would deny that Bitcoin and other cryptocurrencies still experience huge price volatility, which has been further exacerbated recently by the increase in cryptocurrency retail adoption, particularly the meme coin craze, which Kobeissi referred to as "one of the largest cryptocurrency entry events in history." But perhaps that is not the main focus of concern.

Noelle Acheson, the correspondent for "Crypto is Macro Now", told Cointelegraph: "Safe-haven assets are always long-term assets, which means short-term volatility is not a defining characteristic."

The biggest question is whether Bitcoin can maintain its value against fiat currency in the long term, and it has done so. Acheson said, "The data confirms its effectiveness—over any four-year time frame, Bitcoin has outperformed gold and the U.S. stock market." She added:

Bitcoin has always had two key narratives: it is a short-term risk asset that is sensitive to liquidity expectations and overall sentiment. It is also a long-term store of value. As we have seen, it can possess both of these attributes simultaneously.

Another possibility is that Bitcoin may serve as a safe-haven asset for certain events, but not all events apply.

Geoff Kendrick, the global head of digital assets research at Standard Chartered Bank, told Cointelegraph: "I view Bitcoin as a hedge against traditional financial issues," such as the economic downturn following the collapses of Silicon Valley Bank and Signature Bank two years ago, as well as "the risks of U.S. Treasury bonds." However, for certain geopolitical events, Bitcoin may still be traded as a risk asset, he said.

Gold can serve as a hedging tool against geopolitical issues such as trade wars, and both Bitcoin and gold are hedging tools against inflation. Kendrick added, "Therefore, both are useful hedging tools in a portfolio."

Others, including Ark Investment's Cathie Wood, also agree that Bitcoin served as a safe haven during the bank run at SVB and Signature Bank in March 2023. According to CoinGecko, when SVB collapsed on March 10, 2023, the price of Bitcoin was around $20,200. A week later, it rose to about $27,400, an increase of approximately 35%.

Schatz does not believe that Bitcoin is a hedge against inflation. The events surrounding the collapse of FTX and other crypto companies in 2022, as well as the onset of the crypto winter, "seriously undermined this argument."

Maybe it is a hedge against the US dollar and US Treasuries? Schatz added, "That's possible, but these scenarios are frightening to think about."

It's not the time to overreact.

Kobeissi agrees that short-term fluctuations in asset classes "often matter little over the long term." Despite the current pullback, many fundamentals for Bitcoin remain bullish: a pro-crypto U.S. government, the announcement of Bitcoin reserves in the U.S., and a surge in cryptocurrency adoption.

For market participants, the biggest question is: "What is the next major catalyst that will drive the market forward?" Kobeissi told Cointelegraph. "This is why the market is correcting and consolidating: it is looking for the next major catalyst."

Acheson added, "Since macro investors began to view Bitcoin as a highly volatile, liquidity-sensitive risk asset, it has behaved like a risk asset." Additionally, "it is almost always short-term traders who set the final price, and if they are pulling out of risk assets, we will see Bitcoin weaken."

The market is generally under pressure. "The shadow of rekindled inflation and economic slowdown severely affects expectations," which also impacts the price of Bitcoin. Acheson further pointed out:

"Considering this outlook, as well as Bitcoin's dual attributes as a risk asset and a long-term safe haven asset, I am surprised it hasn't fallen deeper."

As for Venugopal, he believes that since 2017, Bitcoin is no longer a short-term hedge or safe-haven asset. The long-term argument for Bitcoin being digital gold due to its supply cap of 21 million Bitcoins is only valid "when most investors collectively expect Bitcoin to appreciate over time," and "this may or may not be the case."

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