Gold has always been considered a safe haven. It has been used for millennia because it is limited in quantity, is a liquid asset, and its value is globally recognized. Especially during periods of global economic crises, such as in the 1930s and following the more recent financial crisis of 2008, gold is considered a safe haven, a form of protection against inflation, currency devaluation, and geopolitical instability. Recently, more and more people have claimed that a speculative bubble in the financial markets is ready to burst. Central banks' mismanagement, high inflation in most fiat currencies, inflated stock market prices, wars, and social and political injustices raise the risks of a new crisis. It is not a coincidence that gold rose 15% in 2023 and is reaching new all-time highs in 2024.
However, there is a new player that could be even better than gold: cryptocurrency. If the banking economic system imploded, how would that affect crypto price? Will crypto go up if banks fail? The crypto asset class will probably go down. Although Bitcoin has many necessary characteristics to become a safe haven like gold, most investors are buying Bitcoin ETFs that are speculative to generate a return on their investment. People don't actually hold Bitcoin or believe in its principles; they don't understand its potential yet. Most people consider Bitcoin only as an asset to diversify their portfolio, not as a real store of value, and it is still considered risky. In a financial crisis, it would be among the first investments to be liquidated by investors who will diversify to less risky assets, such as gold. Consequently, if banks fail, the price of crypto will drop because the price is still correlated with traditional financial systems, markets, and infrastructures.
Conversely, imagine a future where cryptocurrencies have achieved global adoption and an alternative payment system is built on robust, decentralized blockchain networks. A banking system failure could potentially drive up crypto prices in such a scenario in the long term. This is because cryptocurrencies have already established themselves as an alternative and widely accepted store of value and safe haven.
Bitcoin's Characteristics as a Possible Safe Haven if Banks Fail
In the long term, why could Bitcoin become a safe-haven asset, and why will crypto go up if banks fail? There are numerous reasons. Let's look at them in detail in this PlasBit analysis.
Decentralization and Financial Sovereignty
With the current financial system, we must rely on centralized intermediaries (banks) that control and authorize every transaction we do, earning from it. We have no authority and control over our funds, and their value is determined by the economic and political choices of centralized authorities.
On the contrary, with cryptocurrencies, people can have full autonomy and sovereignty over daily transactions and value storage.
The underlying blockchain technology makes Bitcoin and crypto decentralized, more resilient to corruption, and more secure than the traditional financial system. If, in the future, they provide an autonomous payment and value storage method, Bitcoin and cryptocurrency could be partially immune to bank failures. Blockchain technology can definitely make the financial system more transparent and democratic.
These are some of the essential characteristics that can make Bitcoin and cryptocurrencies a perfect asset class for possible value appreciation during bank failures and recessions. But not now because most institutional players invest in crypto speculatively through Bitcoin and Ethereum ETFs. People have not yet realized the potential of blockchain technology.
Scarcity and Limited Supply
The maximum issuable amount of Bitcoin is 21 million coins, making it an inherently scarce asset. It is so mathematically scarce and limited that it could be better than gold in this aspect. New deposits of gold could be discovered, and it is difficult to calculate its total supply reliably and mathematically by publicly tracking its movements.
Bitcoin is more refined and inherently limited in supply, making it deflationary. The Halving mechanism ensures that the newly issued supply halves every four years. Consequently, if supply is limited and adoption grows, the price could surge progressively. If more and more people understand its potential, this could lead to a significant appreciation in value in the long term.
Store of Value
Bitcoin has often been likened to gold due to its properties as a store of value. Like gold, Bitcoin is durable, divisible, portable, and fungible, making it well-suited to serve as a long-term store of wealth. You can easily store large amounts of money in Bitcoin with only a piece of paper. You can transfer it to the other side of the world in a few seconds without limitations or intermediaries. Bitcoin's limited supply and decentralized nature imbue it with qualities that are reminiscent of gold's historical role as a hedge against economic uncertainty and geopolitical instability.
Even if it is now correlated to the traditional financial system and most investments of big institutional investors and whales are speculative through ETFs, this could change in the future. Progressively, more and more people are starting to keep crypto in self-storage wallets, and the number is increasing daily.
Resilience and Security
Despite numerous challenges and issues, Bitcoin has shown remarkable resilience and perseverance. The decentralized network ensures that there are no single points of failure, and altering the blockchain is computationally impractical as it would require too much computing power. Nevertheless, its "proof of history" is still too short to be compared with gold, and the dependence on the internet and electricity still makes it a riskier asset than physical gold.
Suppose blockchain networks continue to show resilience and resistance to fraud and manipulation in the next few years. In that case, progressively, they will be adopted and recognized as more efficient and secure than centralized bank systems. Nevertheless, users need to be educated about blockchain security and functionality to avoid losing access to funds or being trapped in crypto scams.
Investor Perception and Market Sentiment
As we said at the beginning, although Bitcoin objectively has all the characteristics to perform well in banking crises and failures, there are also irrational factors to consider: people. Will crypto go up if banks fail? At the moment, people consider it a speculative and risky asset, and consequently, most of them would sell it if banks fail. In fact, even though Bitcoin and cryptocurrencies are also being progressively adopted at the institutional level (as with Bitcoin ETFs, for example), general sentiment and investor perception view Bitcoin as a risky and non-mature asset, given also its (still) correlation and interconnectedness with traditional financial markets.
However, the sentiment could shift in the future. People could start to recognize its value and potential, and speculative investments could shift to hodling strategies. This can happen if people and institutions stop investing in crypto assets through ETFs and hold them in self-storage wallets with a long-term plan. In this case, it would be considered a safe haven like gold and could perform well if banks fail.
As you can understand, Bitcoin has many characteristics that could make it a potential safe-haven asset in times of crisis. Its decentralization, scarcity, and historical performance make it an attractive option for investors seeking protection from systemic risks and currency depreciation. However, its role as a safe haven is contingent upon widespread adoption, regulatory clarity, and continued market acceptance.
Current Correlation Between Bitcoin and the Traditional Financial Sector
Why could Bitcoin be considered an asset comparable to gold and helpful during bank failures, but we affirm instead that right now, its price would fall if banks failed in the short term?
This is because Bitcoin is currently not widely used practically, neither it nor other cryptocurrencies. There are still few merchants who accept Bitcoin, just as it is not easy for newcomers to trade cryptocurrencies.
Correlation with Traditional Financial Markets
Crypto assets are still immature and have never been able to demonstrate performance during major bank failures, financial crises, and black swans.
Arguably, given the past correlation demonstrated with the traditional financial market, it is highly plausible that if banks failed or went under, cryptocurrency prices would fall, as they have so far. As long as volatility does not decrease and cryptocurrencies are universally recognized as a safe haven independent of the traditional financial market, then the correlation will remain.
Dependency on Fiat Gateways and Exchanges
Although Bitcoin's infrastructure, including its blockchain, is independent, it would not be scalable for payments. Consequently, for everyday transactions, cryptocurrencies must be converted to fiat currency and sent to a bank account or spent with crypto debit cards. Although solutions such as the Lightning Network are gradually being adopted, there is currently a heavy reliance on the traditional financial sector.
Market Sentiment and Psychological Factors
Unfortunately, in investing, rationality counts. Investors, whether they are managers of large financial assets or small investors, are human, and as such, they often take irrational actions based on cognitive bias. Emotions such as fear, greed, pride, FOMO, and adrenaline can lead to irrational and wrong choices. Above all, they can lead to ripple effects and indirectly influence most investors in the market. At the moment, the common sentiment is that Bitcoin and cryptocurrencies are still risky assets. If, in the future, crypto will be progressively considered a gold-like asset class, the sentiment would change.
Regulatory Landscape and Policy Developments
Although, on the one hand, blockchain can bring immutability, security, decentralization, and transparency, it could, on the other hand, facilitate scammers due to the pseudonym of addresses and the lack of cybersecurity education of users. In fact, through analysis and research tools, it is possible to reconstruct wallet transaction data and often trace it back to the original owner of it. Regulation is still uncertain and differs throughout the rest of the world, making Bitcoin and cryptocurrencies still too immature to be considered safe-haven assets.
Will Bitcoin Go Up if Banks Fail? Short-Term Outlook
As we specified earlier, a clear distinction must be made between the short-term effects that there might be on Bitcoin and the long-term effects. Most investors in BTC, in fact, currently see it as a speculative asset to invest in and not a store of value or much less a currency. So, despite its potential as a safe haven, will crypto go up if banks fail? In the short term, definitely not. Let's see why.
Short-Term Impact of Bank Failures on Bitcoin Prices
At present, Bitcoin is closely dependent on and interconnected with the traditional banking system. Bank failures could have significant repercussions on the price of Bitcoin in the short term because this would imply an economic crisis, and investors would fall back on less risky assets such as gold or commodities in general. In fact, most institutional investors who have invested in Bitcoin have done so through ETFs, implying that they do not directly own Bitcoin and consider it only an investment asset, not a store of value.
Liquidity Crunch and Investor Behavior
A bank failure would cause a liquidity crisis, and cash would be king. All investors would rush to liquidate Bitcoin to cover losses on other investments and withdraw cash, exacerbating volatility and causing the price to trend downward. The situation would cause great market stress, and investors would fall back on gold or cash.
Regulatory Responses and Market Confidence
Regulation of cryptocurrencies would be a critical issue in the event of large bank failures. Indeed, governments are intercorrelated with large central banks, and the reaction of markets depends mainly on the social and economic measures taken by governments and banks. It is plausible that in the event of large bank failures, regulators' control and scrutiny of Bitcoin would be amplified, seeking to make it more centralized and controllable. The response of governments would influence Bitcoin's performance.
Asset Reallocation
During financial crises, investors reallocate their portfolios to less risky and volatile assets. This means they would start by selling the riskiest assets (cryptocurrencies) and then move on to stocks, bonds, and other financial instruments, funneling money into safe-haven assets such as gold. This would cause a downward implosion of cryptocurrency prices because they are still considered speculative assets and not stores of value.
Technological and Infrastructural Challenges
Technology infrastructures and crypto exchanges could see a drastic sell-off of cryptocurrencies in a short period. This could create high transaction volumes and overload systems and reserves, thus leading to delays, increased transaction costs, and possible security threats. In addition, less reputable and secure exchanges may not have sufficient reserves of stablecoins or fiat currencies to cope with the massive sale of cryptocurrencies. This could cause additional scandals and issues and could result in some investors not being able to recover their funds.
Market Sentiment and Psychological Factors
As always, investor psychology is central to cryptocurrency price movements. Indeed, during periods of the financial crisis, fear and uncertainty take over the rationality of most investors, leading them to act irrationally and impulsively. This would create a ripple effect whereby, influencing each other, investors rush to sell cryptocurrencies underpriced, exacerbating volatility, market depth, and falling prices.
In conclusion, the short to medium-term outlook for Bitcoin in the event of bank failures is complex and multifaceted. While Bitcoin has the potential to act as a safe haven, its current interconnectedness with traditional financial markets and various external factors could lead to significant volatility, price drops, and fear among investors. But in the long term? Will crypto go up if banks fail?
Long-Term Potential for Bitcoin and Cryptocurrencies
On the contrary, considering a long-term perspective in which cryptocurrencies have established themselves as an asset class independent and decoupled from the financial markets, then the price of cryptocurrencies, and Bitcoin in particular, may not go down indeed.
If Bitcoin, for example, achieves global adoption, decorrelates from traditional financial markets, and is considered a safe haven asset like gold, then it is likely that its price may tend to rise during periods of bank failures and crises. Why?
Global Adoption and Integration
The long-term success of Bitcoin as a safe haven hinges on widespread adoption and integration into the global financial system. As more individuals, businesses, and institutions adopt Bitcoin, its utility and acceptance as a legitimate financial asset will increase. This means that it could be recognized as a mature asset and a store of value, and not just a risky and speculative asset. If interest from institutions and retailers continues to increase, Bitcoin could become an excellent safe haven, even better than gold in many ways. This is possible only if its infrastructure becomes independent of that of traditional banking systems, and its adoption is such that Bitcoin can also be used for everyday transactions.
Decentralization and Network Security
Bitcoin could potentially be the perfect asset to preserve value and act as a safe haven, even better than gold. This is because value can be transferred quickly worldwide at little cost and without central intermediaries. The decentralization of blockchain makes the network more secure and averse to single points of failure, as opposed to traditional banking. If institutions and ordinary people realize that it is better to own Bitcoin in self-storage rather than speculative exposure through ETFs, then things will change, as the price of Bitcoin will be decorrelated from traditional financial markets and the banking sector.
Regulatory Evolution and Clarity
If financial institutions and governments continue to increase their adoption of Bitcoin, as they are already doing with ETFs, ordinary people will also begin to understand the importance of this asset. If regulation regarding cryptocurrencies becomes clearer and more transparent while still leaving decentralization and individual responsibility as central elements, then blockchain could truly revolutionize our future. With clear but non-invasive regulation, Bitcoin has all the characteristics to perform well during times of financial crisis.
Shift in Market Perception
If the above points were to become a reality, there would be a global adoption of Bitcoin, coupled with clear but non-invasive regulation, and decentralization could be maintained as a cornerstone. Then, there could be a change in market perception. People might view Bitcoin as equal to gold; thus, it would be considered a store of value and a safe haven. Therefore, if there was this change in sentiment, it is very likely that even if banks fail and there are fractures in the current financial system, the price of Bitcoin would go up.
Bitcoin as a Resilient Store of Value
Finally, we should consider that the more time passes, the more the value of Bitcoin is universally recognized. The resilience it has shown in recent years makes it increasingly a store of value and a safe haven. The decorrelation with financial markets, although still significantly present, is also gradually diminishing. In the future, if the above points were realized, it would be a conclusive proof that Bitcoin is a real store of value comparable to gold.
Will Crypto Go Up if Banks Fail? A Final Outlook
Now that we have come to the end of our exploration of Bitcoin in relation to possible bank failures, it is time to take a recap.
Short to Medium-Term Implications
At PlasBit, we aim to provide advanced tools and transparent information to achieve financial freedom, so we must be honest. Will crypto go up if banks fail? Plausibly, in the short or medium term, the answer is no. Cryptocurrency prices will go down because they are currently still highly correlated to the movements of traditional markets and are considered risk assets. Cryptocurrencies would be the first asset to be sold in the event of major bank failures and financial crises because they are currently the riskiest and most volatile asset class. Gold would probably be the asset that would be valued the most in the event of bank failures. Bitcoin has all the characteristics to be a very good competitor to gold in the long run, but at the moment, it is still not considered a safe haven but a risky and volatile asset. Most institutional investors invest in Bitcoin through ETFs, which are mainly hedge funds and do not provide you with the underlying asset. If most people understand the potential and directly own Bitcoin in their personal wallets, it will be considered a safe haven asset, and its price could surge during bank failures.
Long-Term Vision for Bitcoin and Cryptocurrencies
At some point in the future, if education about Bitcoin and cryptocurrencies really succeeds in making people realize the revolutionary potential it holds, then there could be a change. Bitcoin could de-link from the financial markets, and people would prefer to own BTC directly in their wallets instead of investing in it speculatively through ETFs. The challenge is to balance regulation, decentralization, scalability, security, adoption, and education. Nevertheless, Bitcoin's inherent characteristics make it an ideal asset to perform well during bank failures or crises. But not yet.
We can shape a future of decentralization, security, financial autonomy, and freedom. We are pursuing this goal at PlasBit, and if you have read this research, we are already doing it well. We want everyone to have the theoretical and practical tools to become free from a corrupt and compromised traditional economic system and embrace the financial freedom and security offered by cryptocurrencies.
To conclude, Bitcoin's inherent characteristics make it a promising safe haven asset and a potential competitor to gold. Nevertheless, in the short term, will crypto go up if the banks fail? As we have explained, in the short term, Bitcoin and cryptocurrencies' prices would fall because they are still considered risk assets: investors would shift to gold and other commodities. But isn't Bitcoin also a commodity? Technically, yes, which is precisely why its value as a long-term safe-haven asset should not be underestimated. If not in the coming years, then in the coming decades, Bitcoin has all the potential to become a store of value and a world currency.
Why is Bitcoin necessary? Let's make a quick final example. If you had $100 million in Venezuelan currency in 2010, today, it would be worth a little over $1. If you had it in gold, you would have twice as much; if you had it in Bitcoin, you would be one of the richest people in the world. We would like to recommend that you do further analysis and investigation on this topic because you need to be aware of the inherent risks of the current financial system, and you must protect your wealth with sound risk management.
