Key facts:
Faced with geopolitical tensions, investors seek assets that have a stable value.
Compared to gold, bitcoin still lacks maturity as a haven of value.
I do not think that bitcoin is going to be the main asset in the current conflicts that occur in Eastern Europe. The drop in the price of the cryptocurrency on the morning of this Thursday, February 24, suggests that investors are not looking for value in it, but in precious metals such as gold and silver. A behavior that is surprising in view of the strength that the narrative of bitcoin as the “digital gold” of our era has had in the last year.
When comparing graphs of the price of gold and bitcoin, the cryptocurrency does not fare well as a safe haven alternative for those who want to protect themselves from the effects that the recent war between Russia and Ukraine will have. While bitcoin recovers from the resounding 8% drop in its price in the morning hours, gold manages to increase 3.4% in the last 24 hours.
And although at the time of writing this article the price of bitcoin is climbing to $40,000 per unit, when we expand the comparison between gold and bitcoin (since 2019) the numbers speak for themselves. While gold has had a constant growth in its value and stable prices, bitcoin stands out for its marked volatility that does not abandon the current scenario.
This behavior of panic and speculation in the bitcoin market contradicts the belief that the cryptocurrency is currently replacing gold as a refuge value (SoV), becoming a financial alternative in the face of the uncertainty of the world economy and the devaluation of fiduciary currencies. . A narrative that was reinforced by the adoption of bitcoin in countries such as Venezuela, Argentina or El Salvador, as well as its sustained growth in the pandemic.
Despite these events suggesting that bitcoin has the ability to be used as a store of value, the reality is that today it is more than anything a risk asset. The volatility of its price suggests this, a characteristic that has always been intrinsic to the cryptocurrency and that must mature before it can be considered a safe alternative.
As if that were not enough, with the entry of more and more institutional money to the cryptocurrency market, the price of this has been coupled to institutional assets. Specifically, there is a high correlation between bitcoin and stocks of technology companies. This financial market niche is also affected by the economic crisis that is brewing in the United States and worldwide, where inflation is wreaking havoc.
In this sense, bitcoin, more than an asset that serves to maintain the true value of your capital, is behaving as a high volatility speculative vehicle. A feature that it can alienate investors who are looking for something that will protect them from the great uncertainty that Russia’s invasion of Ukraine is generating.
This is an opinion shared by connoisseurs of the cryptocurrency market, such as Vijay Ayyar —vice president of the Luno exchange— who considers that bitcoin is still at an early stage of its maturity, so it is still “too early” to call it digital gold.
Eduardo Gavotti, a market analyst recently contacted by CriptoNoticias, also points out that the current geopolitical situation will not help the recovery of the bitcoin price and could increase its volatility. Given these forecasts, It is understandable that people who are looking for ways to move their money, from Ukraine and other parts of the world, in order to protect their capital, do not think of bitcoin as a first alternative..
Bitcoin has other features to offer in this conflict
As you have read in this title of this article, in my opinion there is a big “but” and this is focused on the use of bitcoin beyond a safe haven asset. I still believe that cryptocurrency meets the characteristics of this type of financial productso this episode may be temporary and should not affect its reputation “as digital gold” in the future.
In short, in a few years and at another juncture, there is a probability that bitcoin will become the favorite of all when geopolitical conflicts occur. However, today, in the face of Russia’s attack on Ukrainian lands, the financial protection that bitcoin can offer is very limited.
If we review the five characteristics that make an asset a refuge value, we can see that the cryptocurrency complies with the majority: trust, limited supply, low storage cost, easy transmission and durability of its value. It is possibly the last element that is failing in the narrative of bitcoin as the new gold. Since, although in the long term the cryptocurrency continues to gain value, in a short time its price fluctuates rapidly and is not maintained long enough to generate security.
If you are after the search for an element that gives you security for your capital, you do not bet on the one that is constantly changing, but on the one that has proven to be more stable. This is the lesson that the gold market is currently teaching compared to bitcoin, where the latter can appreciate more than the precious metal in a matter of hours… but also lose those gains just as quickly.
However, I believe that the seed of interest has already been sown and, although today is not the best time to prove that bitcoin is the gold of the future, investors will undoubtedly continue to look for new alternatives to protect their capital. And in that process, without a doubt, Satoshi Nakamoto’s cryptocurrency remains a strong competitor.
With things like its deflationary nature, fully transparent transaction log, censorship resistance, and ease of trading; bitcoin stands out as a financial product. In the midst of an economic and political conflict, the most vulnerable not only look for tools that protect them, but also that facilitate their day to day. This is where bitcoin shines, in its versatility.
It may be a common gamble to buy gold or jewelry futures to keep family (or business) capital safe, but it is also some are likely to see value in bitcoin’s ability to empower citizens over their money while resisting censorship and authoritarianism.
In the same way, due to its digital and private essence, cryptocurrency can become an ally of persecuted politicians, refugees and all those people who want to keep their money out of the power of governments.
Disclaimer: The views and opinions expressed in this article belong to its author and do not necessarily reflect those of CriptoNoticias.
