Although the most prominent digital currency and the cryptocurrency markets in general are growing increasingly fast in popularity, and Bitcoin hit a new all-time high after Trump won the election in November a debate rages on: is Bitcoin a safe haven? No, it's not perceived as a safe haven by retail investors because historical trends show a reverse correlation with traditional financial markets during periods of financial market turmoil. When the stock market drops sharply, investors tend to flee to the US dollar and gold and are quick to sell their Bitcoin holdings, partly because most investors in Bitcoin do not actually own Bitcoin but invest in it through Bitcoin ETFs.
On the other hand, researchers have conducted studies that suggest Bitcoin may feature safe haven properties in times of high market volatility, such as its limited supply. But that is only compared to other, less popular cryptocurrencies and not to proven safe-haven assets such as gold.
What Defines a Safe Haven Asset?
Rising inflation, increased interest rate hikes, and war in Europe and Israel all cause uncertainty in the world and, in turn, the financial markets. Traditional investors tend to rebalance their portfolios and invest in Safe Have assets during these times. But what exactly are Safe Haven assets?
A safe-haven asset is an asset that is expected to maintain or increase in value during times of economic turmoil and negative global occurrences (war, natural disasters, geopolitical tensions between countries, etc.). In most cases, a safe-haven asset will survive a recession.
The financial markets simply don’t go up forever and periods of extreme market turmoil and turbulence are part of our financial system and, unfortunately, an unavoidable part of trading and investing. It is crucial that you are always prepared for these kinds of periods and to fully grasp the effects of them on different asset classes.
Many of the same names crop up regularly in any discussion of safe-haven assets. However, it is important to note that not every safe-haven investment is suitable for every market downturn, and consequently, what is classed as a safe-haven asset can vary depending on the wider economic circumstances.
For this reason, to find out what the best safe haven investment is in any given scenario, you will have to do your own due diligence and make sure that the safe haven asset in question is truly a safe haven for your personal situation.
In the next section of this article, our experts will answer the question is Bitcoin a safe Haven, and outline some of the most popular safe haven investments during times of market turmoil and turbulence. However, you should remember that this is definitely not an exact study or science, that levels of supply and demand fundamentally determine the price of any financial instrument or asset, and that the market will not always react as you or financial analysts think it will.
Another thing to note is that popular safe-haven assets often change over time. Because of this, it is paramount to stay up-to-date regarding the latest market trends before considering any financial instrument a safe haven asset.
Is Bitcoin Comparable to Gold as a Safe Haven?
Although Bitcoin is often called the ‘’Digital Gold’’ of all cryptocurrencies because of its deflationary nature and high level of scarcity, some highly doubt its potential for appreciation and price stability during market turmoil. However, others highly believe crypto will go up if banks fail.
Other risks associated with Bitcoin and other digital tokens include security issues, regulatory uncertainty, and opportunity costs (which means you could have spent your money differently).
Let’s face it: Ever since humans have walked the earth, buying and storing gold has been seen as one of the smartest investments one can make. The intrinsic value of the precious metal offers a "safe haven" during economic downturns or turmoil.
Where activities like forex trading are often associated with a way to make money fast trading the markets, investing in gold is mostly a long-term strategy. Added to this, investing in gold is a way to hedge other positions or investments for most active traders, hedge funds, and trading firms.
By using complex hedging strategies, traders try to minimize their risk exposure as much as possible. Hedging refers to covering risks of certain financial instruments or markets within which one holds positions.
For example, the popularity of investing in gold always increases significantly when a decline in the value of the US dollar is expected. With the rise of cryptocurrencies, some investors have identified investing in Bitcoin as a good way to diversify their portfolio and limit their exposure to the risks of certain asset classes, such as fiat currencies.
Investing in Bitcoin is characterized by its independence from national governments or regional monetary unions and the associated central banks.
However, while both investing in Bitcoin and investing in gold lend themselves to hedging the risks of Forex trading, both instruments have significant differences. Investing in gold dates back to more than 600 years BC, and today, gold is still a very popular instrument among both traders and investors.
Gold has intrinsic value, which proves to be an important asset, especially in times of extreme inflation, an economic crisis, or political tensions. It, therefore, has fewer price fluctuations than many forex trading instruments, which should be considered when investing in Bitcoin.
Bitcoin does have some advantages over gold, though. For instance, it is easier to transfer and store, less prone to theft, and isn’t taxed by governments when transporting it. Because of this, risk management is more easy to apply with Bitcoin than with gold.
The Levels of Volatility of Gold vs. Bitcoin
When you are considering to buy Bitcoin, you should be prepared for extreme price changes. In the years prior to the crypto hype, Bitcoin didn’t really took off that much. However, a few years ago, cryptocurrencies suddenly got the attention of the mainstream media.
What followed was a period in which the most prominent digital currencies increased in value tremendously, also called ‘’The Big Crypto Hype.’’ If you had invested in Bitcoin during that time, you would definitely have made a decent profit. In just four years, the value of a single Bitcoin increased by over 2,800%!
From May 2016 to the all-time high in December 2017, the price rose from approximately USD 2,500 to over USD 19,000. This increase was unprecedented. Economists cite the Dutch tulip mania in the golden age as the only historical phenomenon that is somewhat comparable.
They refer to a wave of speculation that drove the prices of tulip bulbs to extreme heights. At the peak of the boom, the price of tulip bulbs was more than 10 times the annual salary of an experienced professional and the equivalent of the value of an Amsterdam canal house."
The tulip bubble burst quite abruptly, and in January 2018, the price of Bitcoin plummeted by more than 65%. Many hobbyists and novice traders lost a large part of the profits achieved and/or their investment.
Although the price has recovered reasonably well in recent years, some concerned investors wonder whether investing in Bitcoins is wise. The prospects for investing in Bitcoin or investing in Bitcoin are generally favorable. Some investors even expect a rally like the one in 2017 and are positioning themselves for the Bitcoin bubble, while others are pessimistic.
The forecasts for investing in gold are more similar. This gets to the heart of the main difference between investing in Bitcoin and investing in gold. Those who have been investing in Bitcoin for some time will agree that trading in BTC and almost any other form of cryptocurrency trading is characterized by a high degree of volatility.
When investing in Bitcoin, extreme price fluctuations must be taken into account - traders are attracted by the potential to make significant profits within a short period of time. However, profit potential always goes hand in hand with the risk of loss.
What Risks are Associated with Using Bitcoin as a Safe Haven?
Although some people may want to know is Bitcoin a safe haven, and use it as one, they should be warned that not all that glitters is gold. In the section below, our experts outline the three most important risks associated with using Bitcoin as a safe haven: regulatory changes, security issues, and market volatility.
Regulatory Changes and Lack of Regulation in General
Government supervision is currently limited when it comes to investing in crypto. We are talking about supervision by, for example, financial institutions like the CySEC, FCA, SEC, and ASIC. These financial institutions normally check companies, persons, and other entities operating within their territories in the following ways:
● Whether companies comply with laws and regulations;
● The reliability of the people behind the company;
● Whether the business operations are reliable.
This is, therefore, well arranged at regular investment institutions. The institutions over which the SEC has supervision are determined in the Financial Supervision Act. This is different from crypto.
Most service providers that issue crypto coins have no interface with any laws regarding the financing of terrorism or Know Your Customer policies, which is why most banks are against crypto.
Not a single financial guard dog supervises them. But great news! The European Commission is working on a new European bill. This bill should, among other things, give consumers and investors more protection. Crypto service providers will no longer be allowed to exist without a license.
Security Issues - How to Safely Store Your Bitcoin and Other Crypto
It is no secret that Bitcoin and other cryptocurrencies have several security issues. First of all, they all work with a private and public key system, which means that you will have to hand out your public key to anyone you want to send crypto to and that you can never share your private key details.
Other security issues regarding Bitcoin and other cryptocurrencies include the fact that transactions are irreversible. Moreover, it is fairly easy to use a pseudonym to anonymously scam people using the Internet.
Other remarkable security issues are so-called ‘’staking platforms,’’ ‘’high-yield saving programs,’’ and other platforms or companies that offer you too-good-to-be-true APYs. In most cases, you will be promised a set percentage after the staking period is over.
However, the thing with this is that your hard-earned cryptocurrencies and other digital tokens will be ‘’locked’’ until the particular staking period finishes, meaning that you cannot sell at any given moment in time at your command or desires.
Furthermore, It is claimed that Bitcoin cannot be hacked, manipulated or modified. Although some skeptics openly dispute this, its track record so far is excellent and its security is not a concern in Bitcoin investment forecasts.
However, exchanges and digital wallets are vulnerable just like they are online. In the same way that your bank can be hacked or your credit card can be wiped, your Bitcoins can also be investigated. When you choose to buy Bitcoins, it is important that your BTC and other capital is protected.
Bitcoins are only available in digital form. You can store your Bitcoins in special cryptocurrency wallets. A unique aspect of investing in Bitcoins is that they are not traceable. Traders who buy Bitcoin or invest in Bitcoins will know that your Bitcoins have unique secret codes that prove you own them.
James Hill, a software developer at Scott Logic Consultancy, says the security of the blockchain algorithm itself is strong, and the main risk is people losing their own seed key codes or phrases. These secure Bitcoin keys can be stored in a wallet that can be accessed via an app on your smartphone or via a web-based browser version.
Therefore, when wanting to buy Bitcoins in the long run, it is recommended that you ensure that your network and device security is up to date and that your key codes are not lost.
When investing in Bitcoins, it is not only important that you store the codes in a secure manner, but it is also very crucial that you use them through solid, reliable channels. At Plasbit, you can safely buy Bitcoin and other cryptocurrencies in the most favorable trading conditions and competitive transaction costs. However, gold should be bought from an external source. As a European cryptocurrency exchange, Plasbit meets the highest standards. Moreover, we work with the most secure and most celebrated trading software in the world.
Market Volatility - The Fluctuating Value of Bitcoin and Other Crypto
The value of cryptocurrencies is changing rapidly because there is no real 'underlying value.' For example, when you buy shares, you buy partial ownership in a company, and with a bond, you lend your money out to the government for a set percentage, which is often much less risky.
There is nothing like this in the cryptocurrency sphere, and the market decides the price at which digital assets are traded, often based on particular feelings or confidence levels.
This also ensures that the value is sensitive to news. If something happens (a financial crisis, a pandemic, or political decisions), the value of a cryptocurrency can rise or fall quickly. In the worst case, you lose all your money.
How do Global Economic Crises Impact Bitcoin’s Appeal as a Safe Haven?
Economic crises can boost interest in Bitcoin as a non-correlated asset, enhancing its safe-haven status. In general, Bitcoin and other cryptocurrencies always increase in value whenever there is war, market turmoil, or any other negative situation.
The most important reason for this is that all other classes are deemed ‘’risky’’ in times of market turbulence. Because of this, the opportunity cost to buy Bitcoin and other cryptocurrencies is lowered, and becomes much more appealing for everyday people like you and me.
Where can I find more information about Bitcoin as a safe haven?
You can find more information about is Bitcoin a safe haven by conducting extensive due diligence. This means researching credible financial publications, crypto-specific news outlets, and educational platforms, such as our Blog section, written by our in-house team of cryptocurrency experts.
Keep in mind that you should only source your information from trusted sources and that you shouldn’t blindly believe what a trading platform, broker, influencer, or guide says about the storage of the value aspect of Bitcoin or any other cryptocurrency.
Bitcoin as a Safe Haven - Conclusion
Now that we have discussed the ins and outs of whether is Bitcoin a safe haven, and if it is able to secure storage of value in times of market turmoil, it is time to sum up our findings so you can easily decide for yourself whether you think Bitcoin is a safe haven or not.
From our findings, Bitcoin is comparable to gold but much more volatile. This is not really that great because you want storage of value to be as stable as possible and not ‘’swing’’ in both ways swiftly.
In addition, Bitcoin and the cryptocurrency markets as a whole are mostly unregulated, and a lot of hacks and other Bitcoin-related crimes are committed. If this is not all, we also want to stipulate once more that cryptocurrency inherently comes with loads of security issues, such as irreversible transactions, the chance to get hacked, and human error.
With human error, we mean that one can easily lose one’s seed phrase, lose access to it, or even completely forget about it. One of the best solutions for this is Plasbit.
Frequently Asked Questions About Bitcoin as a Safe Haven
Here at Plasbit, our experts receive dozens of questions about Bitcoin and other cryptocurrencies on a daily basis. As we want to be as inclusive as possible in our guides, we have decided to answer the most frequently asked questions about Bitcoin as a safe haven in the section below.
Is gold a better investment than Bitcoin?
There is no correct answer to this question as it varies on a per-person basis. For one, gold is a better investment than Bitcoin, but for others, buying and storing some Bitcoin on a cryptocurrency wallet may be a safer bet.
Are there any other safe haven investments other than gold and Bitcoin?
Yes, there are safe haven investments other than gold and Bitcoin, such as real estate, money market funds, government bonds, and treasuries. Additionally, there may be other safe haven investments, depending on one’s personal financial needs and goals.
How much should I invest in a safe haven asset?
How much you should invest in a safe haven asset totally depends on your situation. How much can you afford to invest? When will you need the funds again? Would you want higher gains in turn for a fixed period, or do you want lower gains but the flexibility to withdraw or redeem any time you want? All these factors weigh in the situation and question how much you should invest.
Where to buy Bitcoin and other cryptocurrencies?
You can buy Bitcoin, Ethereum, and other cryptocurrencies through our exchange service. To do this, simply create an account in order to be able to buy, sell, transfer and securely store both Bitcoin and altcoins.
Where can I safely store my Bitcoin and other digital tokens?
To safely store your Bitcoin and other digital tokens, look no further than our own proprietary crypto wallet. Sign up at Plasbit today, make a deposit, buy crypto, and store it in your own personalized web-based crypto wallet. Additionally, order the Plasbit prepaid to be able to spend your cryptocurrency anytime and anywhere you want.
