People who are antagonistic towards bitcoin have recently been calling attention to how it seems to behave as a risk-on asset. Its price declines when uncertainty increases, and rallies when the uncertainty abates. This assertion is underlined by the observation that bitcoin has been correlated with high-beta tech stocks, and inversely correlated with “safer” investments. This FUD came to a crescendo when Russia attacked Ukraine on Wednesday night. Immediately after the invasion began, traditional safe havens surged in value while bitcoin tanked.
However, this does not reveal anything about the fundamentals. Current price action doesn’t reflect what bitcoin is; it only reflects how traders perceive it. This distinction is important because perceptions can change, and in this case, they likely will.
If bitcoin becomes the global reserve currency, it’s reasonable to assume that it will be widely recognized as a safe asset. After all, there’s a sense in which holding cash balances is a hedge against uncertainty. This applies to everyone, from ordinary people who want to prepare for unexpected emergencies, to large fund managers who boost their cash allocation if they fear a market correction.
This does not mean bitcoin will be viewed exactly as the U.S. dollar is today. It will actually be considered to be the safest asset in human history, thanks to its resistance to debasement, censorship, and confiscation. This property can be especially attractive in the face of geopolitical tensions such as those being experienced today. Therefore, in “risk-off” market environments, the purchasing power of bitcoin will increase relative to other assets. This rise will have similar dynamics to how the dollar currently appreciates during times of uncertainty, but likely in a more pronounced way. Bitcoin will be viewed as the ultimate safe haven.
The best way to prepare for this future market environment is to ensure that you have some bitcoin, right now.
This blog offers thoughts and opinions on Bitcoin from the Swan Bitcoin team and friends. Swan Bitcoin is the easiest way to buy Bitcoin using your bank account automatically every week or month, starting with as little as $10. Sign up or learn more here.