Bitcoin May Not Beat Gold & Forex as Safe Haven Asset

On 3 January 2020, a United States drone strike killed Iran’s most prominent military commander, which increased the tensions between the U.S. and Iran and could trigger a broader Middle East conflict. Investors worried the conflict between the two nations might escalate into a prolonged and damaging war, so some of them increased the allocation of gold and Forex, while others rush to cryptocurrencies, bitcoin, in particular, driving their prices to surge high. Gold and traditional currencies such as the US Dollar, Japanese Yen, Euro, Pound or Chinese Renminbi are all universally accepted as safe-haven assets, but what about bitcoin? Is BTC a safe-haven asset under the growing geopolitical and economic turmoil?

Is BTC a Safe Haven Asset?

Amid all the turmoil and confusion, though bitcoin managed to reach $9,011, the highest price of the year so far, it is still a high-risk bet and cannot be a safe haven even in times of turmoils for the following reasons:

  1. Bitcoin market volume is too small to support the concept of safe-haven assets.
    In traditional investing, a safe haven asset is one where the price typically rises when traders fear of increasing risks or loss; shift money from a riskier asset into a safer one to retain the value of an investment. In fact, compared to the traditional financial market, bitcoin’s market cap of less than $200 billion US dollar is too small to perform the function of safe-haven assets. Moreover, due to the lack of regulations, manipulations, and scams also exist in the bitcoin market. That’s also one of the reasons why SEC rejected or postponed Bitcoin ETF.
  2. Bitcoin cannot be used in a chaotic environment for lacking internet access. In the turbulence area, it may cut off the connection of bitcoin traders and global cryptocurrency exchange for lack of Internet access or limited connectivity. For instance, in Iran, Revolutionary Guard crackdowns on nationwide protests against political corruption and rising gas price, the Iranian government shut down global internet access for nearly five days. And bitcoin wallet apps and exchange apps are blocked despite regaining Internet connectivity. In this case, bitcoin cannot be considered as an alternative of currencies as well as a safe haven asset.

Forex and Gold as Safe-haven Assets are More Profitable

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In uncertain times, gold and forex have remained the popular and most reliable safe-haven assets which investors will turn to.

The Japanese yen and gold rallied on the news of the killing of Iran’s military commander. USD/JPY surged to a three-month high of 110.2 in Asian trading. Meanwhile, the US dollar also started the week on positive footing amid optimism over US-China trade relations.

For the gold market, while geopolitical uncertainty will add volatility to it, investors should pay attention to the growing global debt. As central banks and governments continue to pump liquidity into financial markets which will force gold to surge to higher prices in 2020.

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