This is an old question and we have spoken many times about it already. But the latest evidence on the role of Bitcoin as a safe-haven asset seems to be quite unquestionable. The most famous cryptocurrency in the world has had a great chance to demonstrate its safe-haven role last week, with the outbreak of the corona virus. It failed. The Dow Jones and other benchmark stock indices dipped in couple with traditionally uncorrelated assets. Bitcoin was among them. Later on, the markets have reversed the downward trend, with the Dow Jones rallying over +5.0%. Bitcoin and most other major cryptos rose as well.
The fact that cryptos has rallied alongside the benchmark stock indices seems to confirm the evidence that cryptos are not in fact uncorrelated with stock markets. The last week’s strong correlation could simply be a coincidence, but, due to the particular moment in which it has come out, it has certainly weakened the ‘safe haven asset’ narrative surrounding Bitcoin, which brougth many investors to use cryptos as a diversification asset in their portfolios.
Traditional investors were scared by news regarding the outbreak of the COVID-19 virus, which was captured by the stock market’s price action observed over the past week. Throughout the latter part of February, the Dow Jones retreated from highs of just under 30,000 to its Friday lows of 25,400, the lowest level hit since the 2008 financial crisis. This led to panic amongst traditional investors, with fears of an imminent recession mounting as speculation on the virus’s economic side effects abounded.
The day after, however, the stock market recovered, with the Dow Jones rising by over 5.0% and most other major indices also rising 4.0% or more. Bitcoin’s price action throughout last week was similar to that of the global stock markets, declining from highs of $10,000 last March 1st to lows of $8,400, before climbing to $8,900 on March 2nd. Should this strong correlation persist over the next days, it could raise further dubts about Bitcoin’s digital safe haven narrative.