The coronavirus outbreak is no longer a new thing. Even illiterate grandmothers in my village know about the “strange illness that is jumping from one country to another”, as some of them put it. When the year started and the epidemic was just beginning to take hold in Europe and a few other countries, markets began to feel the effect. However, Bitcoin and some of the major cryptocurrencies started to see great demand, leading to great price increase. For instance, the BTCUSD pair saw its price jump above the $9,000 for the first time in several months. Many experts began to tout Bitcoin as a safe-haven asset. However, it did not take long for Bitcoin’s newly acquired safe-haven status to fall apart. Last week, Bitcoin sold off nearly half of its value in less than one hour in a bloody day for the cryptocurrency market.
Many of the experts and gurus who touted Bitcoin as the next big safe-haven asset after gold were confused. What really happened? How come the coronavirus-driven market fears were able to substantially crush Bitcoin to the extent to which it fell?
To answer the question, it is pertinent to define what a “safe-haven” asset is and then fit Bitcoin into the mold to see whether it can qualify to be known as a safe-haven asset.
What is a Safe Haven Asset?
Safe-haven assets are assets which are a store of value, and help protect investments from being wiped off by a market meltdown or by inflation. Safe-haven assets are therefore used to protect assets in times of economic downturn or to hedge against negative market exposures.
During periods of economic downturn or market upheaval, the focus of most experienced investors is to first preserve the value of whatever investments they have. Profiting from such investments, or capital appreciation is usually a secondary consideration. That is why such safe-haven assets are also called “risk-off” assets. They are in vogue at a time when traders are not willing to take risks. As you may know by now,…