In recent years, it has quickly become clear that the financial markets as looking for new alternatives to the traditional asset classes. As a result, many financial advisors have become crypto advocates arguing for new strategies that implement Bitcoin’s safe haven asset status for investors. Traditionally, safe haven assets can become more valuable when financial markets become unpredictable.
Unlike national fiat currencies, assets like Bitcoin aren’t linked to a government or country-based economy. In addition to this, bitcoin also a cap on its eventual supply level. As Reuters has noted, this means crypto experts are able to say that traditional supply and demand dynamics have an elevated intrinsic value in a way that precious metals like silver or gold might possess.
Moreover, Bitcoin has shown that it has an inverse correlation value relative to stock markets. Sceptics have questioned these assertions, saying there are grounds to believe that the safe haven status thesis does not apply to all scenarios in the financial markets.
In recent weeks, Bloomberg reported that Bitcoin fell by about 15% even when stock markets were falling. This was the worst five-day decline for Bitcoin since last November. Similar experiences were occurring with other cryptocurrencies, which were faring only slightly better at the time. The Bloomberg index which is responsible for tracking the other large digital cryptocurrencies (in addition to Bitcoin) had fallen by roughly 12%.
Overall this was the worst performance for the index in about four weeks. And these experiences have led some crypto analysts and experts in a position where they were forced to explain (or even revise) their opinions.
Matt Maley, financial market equity strategist from Miller Tabak explained: “People thought at certain points in the last year or so that cryptocurrencies would become the flight to safety trade. Overall, the cryptocurrency category is losing some of that luster of being considered a safe asset.”
In recent weeks, many would say that it certainly appears as though Bitcoin is in an environment that could qualify as a test for a safe haven asset classification. Essentially, investors are watching an escalating trade war tension between the China and the U.S., a financial market meltdown in Argentina, anti-government activist protests in Hong Kong, poor economic news coming out of Germany, and an inversion of the U.S. Treasury yield curve (which is often viewed as an indicator of recession).
Of course, there are some of Bitcoin’s recent losses which likely stemmed from news stories that were crypto-specific. For example, the SEC has again delayed a decision on two ETFs tracking Bitcoin. These are the types of news stories that are not directly related to other aspects of the financial markets, so there is an important level of relevance that should be associated with the materials.
However, many of the broader trends already seem to be in place which suggests that cryptocurrency assets are likely to begin replacing traditional asset classes in the years ahead.
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