Coronavirus Has Put Bitcoin’s Safe Haven Narrative to the Test

The price of Bitcoin (BTC) suffered a tremendous crash on March 12, falling from almost $8,000 to stabilize at around $5,000, a loss of about 40% in the span of less than two days. This happened in the context of a global sell-off in all equity markets, where United States stock market indices such as the Dow Jones Industrial Average and the S&P 500 lost around 10% in a single day — a substantial loss for traditional markets.

Some were quick to decree the end of the narrative that Bitcoin is a safe haven asset, sometimes called a store of value, while others pointed to the fact that even gold fell during the bloodbath.

According to TradingView data, the gold price began a fairly steep descent on March 12 from $1,660 per ounce to lows of $1,450 on March 16, a loss of 13% in value. The fact that the precious metal didn’t behave as a hedge during the collapse may have come as a surprise to some. In light of this inconsistency, it is important to understand exactly what a safe haven asset is and how it should behave.

Not all safe havens are equal

The traditional definition of a safe haven asset is “an investment that is expected to retain or increase in value during times of market turbulence.” In the context of Bitcoin, this term is used interchangeably with store of value — which normally refers to long-term wealth storage, however. While gold is often considered a store of value, it’s far from the only one. As Matthew Hougan, global head of research at Bitwise, told Cointelegraph: 

“A lot of people say the words ‘store of value’ without thinking about what that means. It’s important for investors to distinguish between three separate types of assets: stable assets, inversely correlated assets, inflation hedging assets.”

It is the first two categories that are relevant during a sudden market crash, where the effects of inflation are generally minimal. In periods of extreme uncertainty, institutional and retail investors alike tend to go for…

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