The Ultimate Safe Haven

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.