Is Bitcoin a Safe-Haven Asset? The Narrative Shifts after 8 Months of COVID

Friday, 20/11/2020 | 13:00 GMT by Rachel McIntosh
  • Is Bitcoin a 'doomsday insurance policy'?
Is Bitcoin a Safe-Haven Asset? The Narrative Shifts after 8 Months of COVID

As COVID-19 has gripped global society for the better part of a year, the future of the global economy is increasingly uncertain. As such, investors aroun the globe have increasingly sought new methods of protecting the value of their funds.

A number of analysts believe that this is a major contributing factor to the rise in the price of Bitcoin over the past several months. After struggling for months to break through the $10,000 mark, BTC has rallied through a stunning bull run: in just a few months’ time, BTC has risen from around $10,000 to over $18,000 (and climbing.)

However, while economic uncertainty does appear to have driven interest in Bitcoin as an alternative asset, Bitcoin’s status as a true 'safe-haven' or 'reserve' asset is debatable at best.

After all, the market cap of Bitcoin is just $3.38 billion, and, as Blockchain .com research head Garrick Hileman told Finance Magnates earlier this week, “Bitcoin will likely need to reliably hold a value in excess of $50k per coin, equating to a total market value in excess of $1 trillion” in order to truly be considered as a global reserve asset.

Alex Mashinsky, Founder and CEO of Celsius.

Still, while there may be a long way to go, the value of Bitcoin is continually rising; and, while progress is slow, BTC appears to be gaining ground as a possible reserve asset, perhaps, in the words of Celsius’s Alex Mashinsky, as a sort of “doomsday insurance policy.”

At Its Core, “Bitcoin Is a Good Hedge against Inflation.”

Indeed, “in a Covid world, there is no such thing as a safe haven,” said Bill Noble, the Chief Technical Analyst at Token Metrics, in an email to Finance Magnates.

However, that being said, “Bitcoin is a good hedge against inflation,” and as such, can be seen as a store of value.

Bill Noble,
Chief Technical Analyst at Token Metrics.

“If a gallon of milk goes up 40 percent and your pay goes up 20 percent, how do you afford the milk?” Noble said. “Consumers need a currency that can rise to keep up with inflation.”

In other words, “Bitcoin helps protect the holders' purchasing power,” Noble commented, explaining that he believes that “the term ‘store of value’ doesn't go far enough to explain Bitcoin's value proposition fully."

Grayscale: “among People Who Recently Invested in Bitcoin, Almost Two-Thirds Said the Pandemic Impacted Their Decision to Invest in Bitcoin.”

Indeed, Grayscale Managing Director, Michael Sonnenshein told Finance Magnates that “for a lot of people, the instability created by COVID-19 and the resulting economic fallout has been a key factor” in the decision whether or not to invest in Bitcoin.

Michael Sonnenshein, Managing Director, Grayscale

“We recently surveyed US investors. Among people who recently invested in Bitcoin, almost two-thirds said the pandemic impacted their decision to invest in Bitcoin,” Sonnenshein explained. However, “even when you factor in people who don’t invest in Bitcoin, about 40% of US investors said the pandemic made Bitcoin more appealing.”

Sonnenshein said that this growth in appeal has been true for both institutional and retail investors: “recently, you're seeing companies like Square purchase millions in Bitcoin to hold as a reserve asset,” he said.

“MicroStrategy was another company in the news for doing this. Paul Tudor Jones recently announced he sees huge value in Bitcoin. And not to toot our own horn too much, but just last quarter we raised more than a billion dollars from the institutional investor class in our own crypto funds.”

Indeed, “more and more institutions are beginning to understand the role of investing in Bitcoin over the long term. There are many strategies you can use to hedge your risk exposure, such as dollar-cost averaging where you buy a little Bitcoin at regular intervals,” he said.

“People and institutions are making investment decisions in a world where everything is increasingly digital. So there seems to be increasing interest in the idea of investing in something that is verifiably scarce, all-digital, with no central government intervention. I believe that’s why Bitcoin is maybe getting a second or third look today.”

“While Calling Bitcoin a ‘Safe-Haven’ Is Irresponsible, I Do Think Bitcoin Has Some Merit and More Potential as a Store-of-Value Asset.”

But, what does Bitcoin’s rise as a possible 'reserve' asset mean for the future of the financial world?

David Smooke, Founder and Chief Executive at Hacker Noon, also told Finance Magnates that the shift in narrative around Bitcoin has major implications for the future of the digital financial world.

David Smooke, Founder and CEO at Hacker Noon.

David Smooke, Founder and Chief Executive at Hacker Noon.

“While calling Bitcoin a ‘safe-haven’ is irresponsible, I do think Bitcoin has some merit and more potential as a store-of-value asset,” he said. “We are very early in the digital cash revolution. Just as gold is the mascot for the Fed's financial system, Bitcoin is the mascot for the rise of digital cash.”

While Bitcoin may be a symbol of 'digital cash', Smooke explained that Bitcoin itself likely will never play the role of a transactional instrument that can be used for everyday purchases: “omnipresent digital cash could be backed by Bitcoin, but Bitcoin itself is not efficient enough to handle the volume of micro-transactions that a mass adoption digital cash system would require,” he said.

Bitcoin: "No Barrier to Competitive Entry"?

However, David Dorr, Co-founder of Coro Global Inc., believes that Bitcoin cannot really be described as “digital gold,” either:” Bitcoin is not digital gold no matter how much people want to believe that it is,” he said.

“In addition to its inability to have speeds competent enough to function as a medium of exchange, it has no barrier to competitive entry,” he explained.

In other words, “gold is a physical element on the periodic table. There are only a handful of precious metals on the periodic table and unless a meteorite hits Earth and introduces a new precious metal to the periodic table there is a real physical limit to competing with those precious metals,” he said.

David Dorr, Co-founder of Coro Global Inc.

“Bitcoin, while it might be limited in the number of tokens, has no barrier to competition. This is why there are now over 100,000 Cryptocurrencies .”

Bitcoin “Has Its Unique Place in the Basket of SoV Assets and Nothing Can Replace It.”

However, Ashu Swami, Chief Technical Officer at Apifiny, noted to Finance Magnates that while “there is no perfect safe-haven or store-of-value (SoV) asset,” Bitcoin “has its unique place in the basket of SoV assets and nothing can replace it.

“This basket has traditionally contained assets like bonds, munies, income stocks, index futures, gold, US treasuries and cash,” Swami said.

He explained that indeed, whether or not Bitcoin can be considered as a store-of-value asset largely depends on the context of the investor and the moment: “the suitability depends on the investor profile, investment horizon and macro conditions.

Ashu Swami, Chief Technical Officer at Apifiny.

“For example, cash is the perfect safe-haven when investors are waiting for the market to find a direction, but it is a poor choice in the long term because of inflation,” Swami siad. “Central Banks have a great appetite for US treasuries to settle trade imbalances, but to hedge that remote possibility of a dollar meltdown, they hold a healthy amount of gold and other currencies as well.

“Bitcoin has emerged as the safe-haven of the last resort. Just like gold, bitcoin derives its value from the scarcity of supply,” Swami said. “As the US national debt piles and the government shows no abatement in printing money, the demand for a dollar hedge and Bitcoin increases.”

Token Metrics’ Bill Noble also commented that “[...] the gold bugs can cry all they like, but Bitcoin is the new digital gold,” he added, (editor’s note: rather cheekily.) “If institutional investors don’t have Bitcoin on their books by the end of the year, they will become unemployed...and unemployable."

Mr. Noble sees bright things in Bitcoin’s future: “corporations are going to start paying people in Bitcoin as a form of incentive compensation,” he said. “Bitcoin will likely be used to purchase big ticket items. At the retail level, firms like Coinbase will probably attach a debit card to crypto investment accounts. This type of program will give consumers more dollar purchasing power as the crypto in their account rises."

Bitcoin as a “Store-of-Value”: the Power of Narrative

Anton Altement, Chief Executive of Osom.Finance, also pointed out that, almost regardless of its tangible qualities, whether or not Bitcoin is considered as a 'store-of-value' at any given moment has a great deal to do with public perception and narrative.

Indeed, 'store-of-value' is 'not an intrinsic quality' of any of the things that society collectively agrees are valuable, Altement said.

“Why are diamonds or gold (or wine or art or watches) used to store value?” he asked. “Because we collectively agree that they have value. It's more of a social compact than something that is linked to the intrinsic nature of an asset.”

Anton Altement, Chief Executive of Osom.Finance.

For example, “seashells used to be monetary instruments in some parts of the world, but they no longer are,” he said. However, “intrinsically, they haven't changed,” he pointed out; rather, the collective agreement on what they represent has changed.

“There seems to be a growing recognition that Bitcoin is a safe protocol, producing a rare commodity. And we appear to collegially recognize that there is value in that safety and rarity, especially in an age where it appears that fiat money is infinitely printable,” Altement continued.

“It is undeniable that some see Bitcoin as a store of value (look at MicroStrategy, they didn't suddenly decide to start gambling with their treasury), and that the proportion of the world with that point of view is growing.”

This will likely continue with the growing prevalence of central bank digital currencies (CBDCs): “the discussions around CBDC is only heightening the awareness around ‘code as value’ and even if they have little in common with BTC, it familiarizes people with the idea of code as value,” he said.

What are your thoughts on Bitcoin as a safe-haven or reserve asset? Let us know in the comments below.

As COVID-19 has gripped global society for the better part of a year, the future of the global economy is increasingly uncertain. As such, investors aroun the globe have increasingly sought new methods of protecting the value of their funds.

A number of analysts believe that this is a major contributing factor to the rise in the price of Bitcoin over the past several months. After struggling for months to break through the $10,000 mark, BTC has rallied through a stunning bull run: in just a few months’ time, BTC has risen from around $10,000 to over $18,000 (and climbing.)

However, while economic uncertainty does appear to have driven interest in Bitcoin as an alternative asset, Bitcoin’s status as a true 'safe-haven' or 'reserve' asset is debatable at best.

After all, the market cap of Bitcoin is just $3.38 billion, and, as Blockchain .com research head Garrick Hileman told Finance Magnates earlier this week, “Bitcoin will likely need to reliably hold a value in excess of $50k per coin, equating to a total market value in excess of $1 trillion” in order to truly be considered as a global reserve asset.

Alex Mashinsky, Founder and CEO of Celsius.

Still, while there may be a long way to go, the value of Bitcoin is continually rising; and, while progress is slow, BTC appears to be gaining ground as a possible reserve asset, perhaps, in the words of Celsius’s Alex Mashinsky, as a sort of “doomsday insurance policy.”

At Its Core, “Bitcoin Is a Good Hedge against Inflation.”

Indeed, “in a Covid world, there is no such thing as a safe haven,” said Bill Noble, the Chief Technical Analyst at Token Metrics, in an email to Finance Magnates.

However, that being said, “Bitcoin is a good hedge against inflation,” and as such, can be seen as a store of value.

Bill Noble,
Chief Technical Analyst at Token Metrics.

“If a gallon of milk goes up 40 percent and your pay goes up 20 percent, how do you afford the milk?” Noble said. “Consumers need a currency that can rise to keep up with inflation.”

In other words, “Bitcoin helps protect the holders' purchasing power,” Noble commented, explaining that he believes that “the term ‘store of value’ doesn't go far enough to explain Bitcoin's value proposition fully."

Grayscale: “among People Who Recently Invested in Bitcoin, Almost Two-Thirds Said the Pandemic Impacted Their Decision to Invest in Bitcoin.”

Indeed, Grayscale Managing Director, Michael Sonnenshein told Finance Magnates that “for a lot of people, the instability created by COVID-19 and the resulting economic fallout has been a key factor” in the decision whether or not to invest in Bitcoin.

Michael Sonnenshein, Managing Director, Grayscale

“We recently surveyed US investors. Among people who recently invested in Bitcoin, almost two-thirds said the pandemic impacted their decision to invest in Bitcoin,” Sonnenshein explained. However, “even when you factor in people who don’t invest in Bitcoin, about 40% of US investors said the pandemic made Bitcoin more appealing.”

Sonnenshein said that this growth in appeal has been true for both institutional and retail investors: “recently, you're seeing companies like Square purchase millions in Bitcoin to hold as a reserve asset,” he said.

“MicroStrategy was another company in the news for doing this. Paul Tudor Jones recently announced he sees huge value in Bitcoin. And not to toot our own horn too much, but just last quarter we raised more than a billion dollars from the institutional investor class in our own crypto funds.”

Indeed, “more and more institutions are beginning to understand the role of investing in Bitcoin over the long term. There are many strategies you can use to hedge your risk exposure, such as dollar-cost averaging where you buy a little Bitcoin at regular intervals,” he said.

“People and institutions are making investment decisions in a world where everything is increasingly digital. So there seems to be increasing interest in the idea of investing in something that is verifiably scarce, all-digital, with no central government intervention. I believe that’s why Bitcoin is maybe getting a second or third look today.”

“While Calling Bitcoin a ‘Safe-Haven’ Is Irresponsible, I Do Think Bitcoin Has Some Merit and More Potential as a Store-of-Value Asset.”

But, what does Bitcoin’s rise as a possible 'reserve' asset mean for the future of the financial world?

David Smooke, Founder and Chief Executive at Hacker Noon, also told Finance Magnates that the shift in narrative around Bitcoin has major implications for the future of the digital financial world.

David Smooke, Founder and CEO at Hacker Noon.

David Smooke, Founder and Chief Executive at Hacker Noon.

“While calling Bitcoin a ‘safe-haven’ is irresponsible, I do think Bitcoin has some merit and more potential as a store-of-value asset,” he said. “We are very early in the digital cash revolution. Just as gold is the mascot for the Fed's financial system, Bitcoin is the mascot for the rise of digital cash.”

While Bitcoin may be a symbol of 'digital cash', Smooke explained that Bitcoin itself likely will never play the role of a transactional instrument that can be used for everyday purchases: “omnipresent digital cash could be backed by Bitcoin, but Bitcoin itself is not efficient enough to handle the volume of micro-transactions that a mass adoption digital cash system would require,” he said.

Bitcoin: "No Barrier to Competitive Entry"?

However, David Dorr, Co-founder of Coro Global Inc., believes that Bitcoin cannot really be described as “digital gold,” either:” Bitcoin is not digital gold no matter how much people want to believe that it is,” he said.

“In addition to its inability to have speeds competent enough to function as a medium of exchange, it has no barrier to competitive entry,” he explained.

In other words, “gold is a physical element on the periodic table. There are only a handful of precious metals on the periodic table and unless a meteorite hits Earth and introduces a new precious metal to the periodic table there is a real physical limit to competing with those precious metals,” he said.

David Dorr, Co-founder of Coro Global Inc.

“Bitcoin, while it might be limited in the number of tokens, has no barrier to competition. This is why there are now over 100,000 Cryptocurrencies .”

Bitcoin “Has Its Unique Place in the Basket of SoV Assets and Nothing Can Replace It.”

However, Ashu Swami, Chief Technical Officer at Apifiny, noted to Finance Magnates that while “there is no perfect safe-haven or store-of-value (SoV) asset,” Bitcoin “has its unique place in the basket of SoV assets and nothing can replace it.

“This basket has traditionally contained assets like bonds, munies, income stocks, index futures, gold, US treasuries and cash,” Swami said.

He explained that indeed, whether or not Bitcoin can be considered as a store-of-value asset largely depends on the context of the investor and the moment: “the suitability depends on the investor profile, investment horizon and macro conditions.

Ashu Swami, Chief Technical Officer at Apifiny.

“For example, cash is the perfect safe-haven when investors are waiting for the market to find a direction, but it is a poor choice in the long term because of inflation,” Swami siad. “Central Banks have a great appetite for US treasuries to settle trade imbalances, but to hedge that remote possibility of a dollar meltdown, they hold a healthy amount of gold and other currencies as well.

“Bitcoin has emerged as the safe-haven of the last resort. Just like gold, bitcoin derives its value from the scarcity of supply,” Swami said. “As the US national debt piles and the government shows no abatement in printing money, the demand for a dollar hedge and Bitcoin increases.”

Token Metrics’ Bill Noble also commented that “[...] the gold bugs can cry all they like, but Bitcoin is the new digital gold,” he added, (editor’s note: rather cheekily.) “If institutional investors don’t have Bitcoin on their books by the end of the year, they will become unemployed...and unemployable."

Mr. Noble sees bright things in Bitcoin’s future: “corporations are going to start paying people in Bitcoin as a form of incentive compensation,” he said. “Bitcoin will likely be used to purchase big ticket items. At the retail level, firms like Coinbase will probably attach a debit card to crypto investment accounts. This type of program will give consumers more dollar purchasing power as the crypto in their account rises."

Bitcoin as a “Store-of-Value”: the Power of Narrative

Anton Altement, Chief Executive of Osom.Finance, also pointed out that, almost regardless of its tangible qualities, whether or not Bitcoin is considered as a 'store-of-value' at any given moment has a great deal to do with public perception and narrative.

Indeed, 'store-of-value' is 'not an intrinsic quality' of any of the things that society collectively agrees are valuable, Altement said.

“Why are diamonds or gold (or wine or art or watches) used to store value?” he asked. “Because we collectively agree that they have value. It's more of a social compact than something that is linked to the intrinsic nature of an asset.”

Anton Altement, Chief Executive of Osom.Finance.

For example, “seashells used to be monetary instruments in some parts of the world, but they no longer are,” he said. However, “intrinsically, they haven't changed,” he pointed out; rather, the collective agreement on what they represent has changed.

“There seems to be a growing recognition that Bitcoin is a safe protocol, producing a rare commodity. And we appear to collegially recognize that there is value in that safety and rarity, especially in an age where it appears that fiat money is infinitely printable,” Altement continued.

“It is undeniable that some see Bitcoin as a store of value (look at MicroStrategy, they didn't suddenly decide to start gambling with their treasury), and that the proportion of the world with that point of view is growing.”

This will likely continue with the growing prevalence of central bank digital currencies (CBDCs): “the discussions around CBDC is only heightening the awareness around ‘code as value’ and even if they have little in common with BTC, it familiarizes people with the idea of code as value,” he said.

What are your thoughts on Bitcoin as a safe-haven or reserve asset? Let us know in the comments below.

About the Author: Rachel McIntosh
Rachel McIntosh
  • 1509 Articles
  • 60 Followers
About the Author: Rachel McIntosh
Rachel is a self-taught crypto geek and a passionate writer. She believes in the power that the written word has to educate, connect and empower individuals to make positive and powerful financial choices. She is the Podcast Host and a Cryptocurrency Editor at Finance Magnates.
  • 1509 Articles
  • 60 Followers

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