Crypto

It’s Not A Safe Haven Like Gold


Bitcoin, long hyped by fans as a safe haven, a hedge against inflation and an alternative to gold — saw its price plummet 8 percent within minutes after Russia invaded Ukraine on Feb. 24.

The Bitcoin price subsequently recovered to more than $39,000 in the last 24 hours and other stocks closed higher on Thursday, but as of Feb. 22, year to date, gold is up 6 percent and Bitcoin is down 25 percent.

It wasn’t just Bitcoin that nosedived after the Ukraine invasion. The total crypto market lost $160 billion of value in the 24 hours that followed — a 10-percent drop. The Dow and the S&P both entered correction territory this week, falling more than 10 percent from recent record highs and the Russian ruble hit a record low. Crude oil prices went above $100 a barrel for the first time since 2014, which is expected to reinforce inflation fears.

Russia is one of the largest producers of crude oil in the world with close to 12 percent of the world’s total supply. U.S. sanctions on Russia could create chaos in the global energy market and push oil prices to much higher levels.

Gold prices were also rising amid Russia-Ukraine tension, hitting close to a nine-month high on Tuesday after Russian President Vladimir Putin deployed troops to Eastern Ukraine. In addition to prospects of war, prolonged higher inflation has helped raise demand for gold as a safe haven.

Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?

Stocks were already falling for most of 2022 because of the prospect of higher interest rates and more inflation in the U.S., but the fact that Bitcoin is falling in lockstep with other assets is contrary to its identity as a safe haven.

“Crypto tanking during high inflation + political turmoil – What an amazing portfolio diversifier/safe haven asset!” tweeted Puru Saxena, a founder of money management firms.

Over the past year, as more institutional investors embrace cryptocurrency, the value of Bitcoin and other crypto has tracked traditional markets more closely—falling and rising when traditional stocks fall and rise, Forbes reported.

“The correlation between crypto and stocks has been high over the last few months on both inflation-related macro news and the Russia-Ukraine geopolitical situation,” Chris Dick, a quantitative trader at crypto market maker B2C2, told CNBC. “This correlation shows that Bitcoin is firmly behaving like a risk asset at the moment—not the safe haven it was touted to be a few years ago.”

READ MORE: 5 Things To Know About Bitcoin’s Risky Correlation With Big Tech, Risk Assets And The Stock Market

David Rosenberg, the founder and president of Rosenberg Research & Associates Inc., tweeted, “The plunge in the Bitcoin/Gold ratio is testament to the view that crypto was never a currency (‘asset class’??) you could rely on in troubled times. Neither safe nor a haven — just a high-beta correlation with the most speculative elements of the risk-on trade.”

The Biden administration has vowed to impose severe economic sanctions on Russia over its invasion of Ukraine, including penalties on five Russian banks that represent an estimated $1 trillion in assets.

Governments that have been hit in the past with sanctions, including Iran and North Korea, have relied on crypto to minimize the effects.

Anticipating sanctions, Putin and his billionaire friends could have stashed billions in cryptocurrency. More than 17 million Russians — about 12 percent of the population — own crypto, according to data from Singapore-based payment gateway TripleA. Collectively, they own $22.9 billion worth of cryptocurrencies, according to a recent government paper. “And with more sanctions pending, it could be in Russia’s interest to let rich individuals deal in crypto regardless of its legal status,” Bloomberg reported.

But Bitcoin bears weren’t buying it as the markets responded to the invasion of Ukraine.

“Looks like Bitcoin will not be safe haven in geopol crises. Digital gold (Bitcoin) has plummeted to <$37k, while Gold has risen >$1900/oz. Correlation between digital & analog Gold is now even neg. Narrative that digital Gold is better way to escape has not panned out in Ukraine,” tweeted Holger Zschaepitz, author of the book, “Schulden ohne Sühne?” (“Debts Without Atonement”) on governments’ addictiveness to debt.



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