Bitcoin, the new safe haven

In forex markets, a safe haven currency is defined as a currency used like a hedge for a portfolio of risky assets conditional on movements in global risk aversion. The Japanese Yen and the Swiss Franc are considered notable examples of safe currencies. Over the last years, analysts opened a debate on whether Bitcoin could be considered a safe haven currency. It seems hard to believe, as the coin has a strong reputation as a speculative currency. Yet, during the most recent market turmoils, it has behaved just like a typical safe haven. We had a good example of this when the most famous cryptocurrency has bounced back above $10,000, amid fears over the economic impact of the Chinese coronavirus.

On February 9th, bitcoin rose above $10,000 for the first time since September 2019 and on February 12th was trading at $10,335 on crypto exchange Bitstamp. It had hit a low of $3,196 in December 2018. It does not seem a coincidence that Bitcoin and other cryptocurrencies have joined the safe-haven asset club at times of economic or political uncertainty. Trading bitcoin has been always considered a risky business. But now, opinions are changing.

Many analysts consider the coronavirus a key factor in Bitcoin latest surge, although the main driver in the short-term is mostly attributed to the upcoming Bitcoin ‘halving’, which will occur next May, when the number of bitcoins available to miners will be cut by half. The last halving took place in 2016. After that Bitcoin prices doubled and surged to a record high in 2017.

Despite its huge success, cryptocurrencies are still not accepted as an alternative to traditional e-payment methods, such as credit cards, and they are often considered a tool used for criminal purposes. The current lack of official regulation also contributes to consider Bitcoin not as safe as the last market evidence shows. Despite this, the growing correlation between Bitcoin and traditional safe haven assets and eurozone sovereign bonds – recently considered among the safest assets – suggests that the coin can now truly be considered as a safe haven currency.

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