Is Bitcoin a safe haven asset or is it still a cryptocurrency?

Due to the fact that both bitcoin and gold have monetary qualities, such as being used as a medium of exchange and a store of value, they are frequently compared. However, due to its extremely quick transaction times and cross-border transaction compatibility, Bitcoin’s contribution to the larger financial ecosystem may be significantly greater than that of gold.

Because it can be exchanged as both a currency and a commodity, gold is widely regarded as a safe-haven asset. Because of its rarity and stable value, gold also serves as a national strategic reserve. On the other hand, Bitcoin has been a popular topic of conversation due to its $15.7 billion market cap in 2020 and a total supply of 21 million since its introduction.

An investment of $1 in Bitcoin in 2010 would today be worth more than $90,000, according to Bank of America’s Securities Report, which shows that Bitcoin increased by 8.9 million per cent over the past ten years. With the recent surge in the popularity of blockchain technology applications, Bitcoin has an advantage over Gold. Furthermore, Bitcoin may be exchanged effectively and flexibly due to its barrier-free circulation and 24-hour trading in the digital economy, in contrast to gold, which is weighty, subject to strict regulation, and significant taxation.

Bitcoin And Gold Are Safe-Haven Investments

The price of gold and inflation have a positive correlation, whereas the price of USDX and other significant stock indices like DJI and S&P 500 has a negative association. Considering its price shift tendencies, gold can be a “safe-haven asset” for investors during periods of economic hardship and political unrest.

The price of Bitcoin and the US dollar is increasingly negatively correlated, according to the “Bloomberg’s 2020 Crypto Outlook” research. Additionally, it displays the strongest 52-week negative connection between Bitcoin and the dollar since 2010. This indicator of how an alternative currency compares to the dollar is similar to how gold is measured.

The level of inflation reflects a currency’s purchasing power. In order to prevent financial instability brought on by severe inflation or deflation, Federal Reserve policymakers aim for an inflation rate of 2%. The majority of economists note that, with an inflation rate between 2% and 3%, more economic growth may be attained with a little stimulus. In conclusion, Bitcoin might be a better choice as a safe-haven asset because it has a lower rate of inflation than gold.

Bitcoin And Gold Price Trends During Extreme Events

There has been a significant price change trend during extreme events, in both the long-term and short-term, for Bitcoin and gold.

A Ten-Year Trend

In terms of the long-term price trend, gold has been far more stable over the last ten years than Bitcoin, but the ROI (return on investment) is the reverse. Bitcoin has experienced a skyrocketing ROI since 2017, along with a significant risk, while gold has the distinguishing quality of being a safe-haven asset. On August 2, 2019, both countries declared putting tariffs on each other due to an intensifying trade spat between China and the US.

 

Investors’ Feelings During Extreme Events

In contrast to Bitcoin, the sentiment index for gold is stable and does not experience significant volatility. However, the sentiment index of Bitcoin is more likely to experience a substantial increase than gold if a major economic event occurs. People are therefore more likely to purchase Bitcoin as a safe-haven asset to deal with the country’s breaking events. Due to the ambiguous stance that different nations have about Bitcoin, the sentiment index of Bitcoin is less stable than that of gold as a store of value.

Wrapping it up

With its flexibility, lack of restrictions, and 24-hour trading, bitcoin is more susceptible to negative events than gold. Even while Bitcoin is more successful in the short term when it comes to hedging, particularly against the volatile markets, gold is more stable than Bitcoin through market fluctuations and extreme occurrences.

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