The Bitcoin Safe-Haven QuandaryThe drop in the volume on CME’s Bitcoin platform is indicative of institutional investors pulling away from riskier investments in a time when the markets are under strain. This is not uncommon, or unusual. However, it does lead one to believe that Bitcoin is still being seen as a risky asset for investment, one more suited to bullish market situations. This is counter to an argument developing that Bitcoin is, in fact, a digital gold, and thus has the properties of anti-correlation and the status as a safe haven. So far, Bitcoin has hardly covered itself in glory as a safe haven asset at the time of the Coronavirus outbreak. The cryptocurrency dropped as much as $1,400 over a period in which the rest of the traditional markets were also hemorrhaging. However, the drop in Bitcoin’s price was probably not directly linked to the spreading of the virus and its effect on the global economy.
Not Yet the Hedge We Hoped ForBitcoin has been described as a new asset class and one that is not correlated to other markets. Those who are bullish on cryptocurrencies would be astounded that more institutional investors are not running to Bitcoin as a hedge against the stock market — or even to faltering gold. However, the fact of the matter is that Bitcoin has yet to prove itself in the minds of traditional institutional investors. The risk is still far too large for big money to be pumped into the cryptocurrency market in times of financial stress. In fact, the risk is not even being considered as Bitcoin is still a niche asset that only fills around one percent of large portfolios.
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