Since its launch more than a decade ago, bitcoin, the largest cryptocurrency by market cap, was regarded by believers to be the “digital gold”, a new type of safe-haven investment like gold that would retain value when most other asset classes hit a rough patch.
Such assumptions, however, received a substantial jolt in recent weeks in the wake of the market turbulence caused by the global coronavirus outbreak.
Amid market shocks triggered by fears over the pandemic, the bitcoin actually recorded larger decline than other “traditional” assets over the past month.
“While gold has been rallying, cryptoassets including bitcoin continue to face heavy sell-offs amid the growing global epidemic, challenging bitcoin’s safe-haven status,” Yoni Assia, an early bitcoin acolyte and CEO of social investment platform eToro, said in an interview with EJ Insight.
After a bull run in 2019, bitcoin got off to a strong start this year, with a 40 percent surge to US$10,326 in mid-February from US$7,193 at the end of December. But it then plummeted by 50 percent to US$4,970 within a month. As of March 19, it was trading at US$5,294, according to market data provided by CoinMarketCap.
In contrast, the price of gold, a traditional safe-haven asset popular with investors looking for an alternative to US dollars, has fallen by 8 percent in the past month.
“The preliminary goal of safe-haven assets is to protect investors during market turmoil; investors typically seek assets that have an inverse correlation with the stock markets,” said Assia.
“However, unlike traditional safe-havens (Treasury notes, US Dollar, Swiss Franc, Japanese Yen, gold), the bitcoin market is a speculative one with high volatility, which might explain why they are failing to act as a safe-haven asset.”
The slide, however, appears to have prompted some investors to build positions again.
“Data from eToro [in early March] shows that bitcoin is being bought…