Earlier this year, the anecdote that bitcoin serves as a safe-haven asset in times of heightened macroeconomic risks received support from factual data.
The benchmark cryptocurrency and its traditional rival gold both established year-to-date highs as the U.S. and China slapped tit-for-tat tariffs, the yield curve inverted and signaled a recession, and the Federal Reserve and the European Central Bank (ECB) indicated rate cuts.
But the narrative is proving to be contradictory, at least in the case of bitcoin. In the last week, two significant events impacted the global financial market sentiments: drone attacks on Saudi Arabia’s oil production facilities and ECB’s announcement of introducing a fresh rate cut and restarting quantitative easing. The events prompted downside moves in the global equity market, which, in turn, increased bids in haven assets such as gold and U.S. Treasuries. Bitcoin, on the other hand, appeared like a mum spectator.
Massachusetts-based data analytics Firm Coin Metrics said in a note that bitcoin’s status as a safe-haven asset is – at best – “spurious in nature.” It also said analysts might not have fully understood the cryptocurrency’s “reaction function” against geopolitical and macroeconomic events, which makes the entire safe-haven narrative inconsistent.
Not My Safe-Haven
Investors picked safe-havens, but they ignored bitcoin. Their decision to fly their capital into more traditional hedging assets benefited gold. The yellow metal surged by as much as 1.6% on the day oil registered a 20% loss. Treasuries advanced as well, with the yield on the benchmark 10-year bond coming down to 1.792%. It is still trending downwards.