BLOG: Bitcoin is not a safe haven asset…yet
The Bitcoin rollercoaster ride has continued this year. The cost of a Bitcoin has jumped from around £3,000 in January to £10,000 in August, the highest it’s been since late 2017.
For those who came aboard the Bitcoin bandwagon early, the volatility has provided an opportunity to buy and sell and buy again and make money in the margins, especially for anyone holding large volumes. So, it seems strange to me that some firms are calling the latest rally the making of Bitcoin as a safe haven asset.
I first became interested in Bitcoin in 2013 while working at a global asset manager, but it wasn’t until a couple of years later that I became a convert to its use as money and began to buy, sell and use Bitcoin and other cryptocurrencies on the blockchain.
Financial advice firm deVere Group has claimed the recent price movements prove that “Bitcoin is becoming a flight-to-safety asset during times of market uncertainty” and “Bitcoin is currently realising its reputation as a form of digital gold”.
So, a store of value as well as a currency? While Bitcoin may reach this status one day, it cannot be counted on as a reliable monetary system let alone a store of value while there are technological barriers preventing easy purchase and sale process or custodians to ensure security – but that will come.
Things have begun to change recently in both the Bitcoin world and the global economic climate. A technological innovation called the lightning network has brought transaction times and costs way down to make it functional as a medium of exchange again. The take-up is also growing – you can buy a beer and a burger in Brewdog with Bitcoin now, or soup and a drink in Old Street.
Coupled with this is investor fears concerning the current economic climate. The traditional safe haven against such risk is gold, which in the last year has gone from c.£950 per oz to £1,200 and I cannot see how Bitcoin, as much of a fan of its potential as I am as a medium of exchange, can muscle in on gold’s status. Gold has the history and the stability to be the only true safe haven asset.
And yet in the last century private ownership of gold was banned in the UK and the US, in the latter case for over 40 years from the 1930s. Could that happen again during another financial crisis? In that situation Bitcoin, with no owner and no controlling party, could become the default option.
But these are worse case scenarios.
For now, Bitcoin remains an intriguing but still flawed solution to a problem that doesn’t exist in the west…yet. But in many countries, like Venezula, it makes complete sense and with time, leaps forward in governance and technology, in an era of financial instability Bitcoin may well end up taking its place as a ‘digital gold’. But in my opinion that time is still some way off.
Matt Morris has been working in financial advice and asset management for over a decade. He runs Bitcoin and Blockchain seminars for investment professionals and he is currently a partner and investment director at Carr Consulting & Communications