Bitcoin took a battering on Thursday on the back Russia’s invasion of Ukraine and as Vladimir Putin threatened any western intervention with the ‘greatest consequences in history.’
The digital currency fell by over 8% and flirted with the key support level of US$35,000, adding to what has been a period of decline since November’s all-time high of US$67,000.
It comes amidst the international crisis, rising interest rates and soaring inflation.
Bitcoin’s demise in parallel with such externalities has chipped away at some of the crypto evangelism that claimed Bitcoin would be the safest bet and an alternative to gold (which has spike up to US$2,000 an ounce).
Gold soaring – as it traditionally would – in this period of geopolitical upheaval further scars the Bitcoin argument.
Has Bitcoin lost its status as a ‘safe haven?’
The origin of the belief that Bitcoin is an alternative to gold as a store of value and a hedge against inflation is somewhat clouded in mystery.
Financial experts and analysts have always been vocal over the risk and volatility involved in crypto, with the markets extremely reactive to anything from a rise in interest rates to tweets from billionaire Elon Musk.
Laith Khalaf, head of investment analysis at AJ Bell believes extreme price volatility means it is “ill equipped,” to act as a digital version of gold or a hedge against inflation but adds this “rationale has been circulating in the crypto industry.”
With the situation worsening in Ukraine, Ipek Ozkardeskaya, a senior analyst at Swissquote believes the price could fall below US$30,000 and even further.
He also adds that the Russian situation is one of many factors stopping Bitcoin being seen as a haven, with higher energy prices making crypto mining more expensive a “fundamental reason” preventing it from being safe haven asset in the current environment.
Perhaps unsurprisingly, “gold has been an obvious choice for investors,” said Fawad Razaqzada, a market analyst at ThinkMarkets.
The historical store of value has steadily been rising towards the all-time high levels achieved in 2020 of US$2,075, with it accelerating this week as the market anticpated the Russian invasion.
The opposite movements of these assets over the first two months of 2022, in the face of soaring inflation, rising interest rates and geopolitical tensions should be the firmest sign that investors don’t see Bitcoin as a safe haven.
A deepening of the relationship between crypto and stock markets further underlines this, with the two asset classes now increasingly moving in unison as institutional investors have began investing in digital currency.
The overwhelming level of speculative interest in crypto has skewed it into the basket of so-called ‘risk-on’ assets, favouring in good times and avoided when markets are uncertain.
That belief is echoed by Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown, who said, "the crypto world’s hopes for assets like Bitcoin to achieve digital gold status have evaporated as speculators have headed for the exit as the crisis in Ukraine has deepened."
She adds that Bitcoin "had been hyped as a potential safe haven in times of higher inflation and market volatility, but instead has swung wildly down as equity market sell offs have intensified."
Bitcoin, and cryptocurrencies in general, have evidently performed poorly against the backdrop of global turmoil, and that plainly isn’t a characteristic of a so-called safe haven asset.