Bitcoin's Safe-Haven Status Questioned as Price Drops 10% Amid Global Tariff War

Bitcoin, once hailed as a safe-haven asset by many in the crypto community, is now facing scrutiny as its status comes into question. A safe-haven asset is typically one that maintains or increases in value during times of economic stress, such as government bonds, the US dollar, gold, or blue-chip stocks. However, the recent global tariff war initiated by the United States and troubling economic reports have caused equity markets to tumble, and Bitcoin has followed suit, which is contrary to the behavior expected of a risk-off asset.

Bitcoin's performance has been particularly disappointing compared to gold. While gold prices have risen by 10% since the beginning of the year, Bitcoin has dropped by 10% during the same period. This divergence has led some market observers to question whether Bitcoin was ever truly a safe-haven asset. Paul Schatz, founder and president of a financial advisory firm, has never considered Bitcoin a safe haven due to its significant price volatility. Similarly, Jochen Stanzl, Chief Market Analyst at a financial services company, views Bitcoin as a speculative instrument rather than a safe haven, noting that its value can plummet by 80% during major corrections, unlike gold, which has intrinsic value.

The perception of Bitcoin as a safe haven may be changing. Its inclusion in exchange-traded funds issued by major asset managers has widened its ownership base but may have also altered its narrative. Bitcoin is now more widely seen as a speculative or risk-on asset, similar to a technology stock. Adam Kobeissi, editor-in-chief of a financial newsletter, notes that Bitcoin and other cryptocurrencies have become highly correlated with risky assets and often move inversely to safe-haven assets like gold. This shift in narrative, coupled with increased institutional involvement and leverage, has added to the uncertainty surrounding Bitcoin's future.

Some argue that Bitcoin's acceptance by traditional finance giants does not necessarily make it a safer asset. Instead, it may subject Bitcoin to the usual trading and draw-down strategies that institutional investors use, making it more correlated with risky assets in the market. Buvaneshwaran Venugopal, an assistant professor in the department of finance, suggests that Bitcoin's dual nature as both a short-term risk asset and a long-term store of value allows it to behave differently depending on the context. For instance, Bitcoin may act as a hedge against issues in traditional finance, such as bank collapses, but it might still trade as a risk asset during geopolitical events.

Geoff Kendrick, global head of digital assets research, agrees that Bitcoin can serve as a hedge against certain events but not others. He sees Bitcoin as a hedge against issues in traditional finance and US Treasury risks but notes that it might still trade as a risk asset during geopolitical events like trade wars. Gold, on the other hand, can serve as a hedge against both geopolitical issues and inflation, making it a useful addition to a portfolio. Cathie Wood, CEO of Ark Investment, also agrees that Bitcoin acted as a safe haven during the Silicon Valley Bank and Signature Bank runs in March 2023, when its price increased by roughly 35% in a week.

Despite the current drawdown, many of Bitcoin's fundamentals remain positive. A pro-crypto government, the announcement of a Bitcoin Reserve, and a surge in crypto adoption are all factors that could support Bitcoin's long-term value. However, the search for the next major catalyst to continue the run is ongoing, and markets are pulling back and consolidating as a result. Noelle Acheson, author of a crypto newsletter, notes that Bitcoin's dual nature as both a risk asset and a long-term safe haven makes it resilient to short-term fluctuations. She is surprised that Bitcoin is not falling further given the current economic outlook and the specter of renewed inflation and an economic slowdown.

In conclusion, while Bitcoin's status as a safe-haven asset is in doubt, its dual nature as both a short-term risk asset and a long-term store of value allows it to behave differently depending on the context. Its acceptance by traditional finance giants and positive fundamentals suggest that Bitcoin may still have a role to play in a diversified portfolio, but its correlation with risky assets and susceptibility to short-term volatility should be taken into account. As the search for the next major catalyst continues, market players will be watching Bitcoin's performance closely to determine its future as a safe-haven asset.