Bitcoin’s drop shows no safe-haven status, gold not much better

Following months of speculation, on the 24th of February Russian president Vladimir Putin sent his army across the border into Ukraine.

Following months of fraught speculation and troop build-ups, explosions were heard at major Ukrainian cities, including the capital, Kyiv. The initial attack consisted of cruise missiles, artillery, and airstrikes, hitting military and key infrastructure targets. Russian troops then entered Ukraine from the north, east, and south, targeting the capital, Kyiv, and other cities such as Kharkiv and Kherson.

The attacks had an immediate impact on global markets with the Dow Jones, S&P 500, and Nasdaq futures falling between two and 2.7 percent before the market opened.

After a bearish start to 2022, with the Omicron surge, rising inflation fears, and the Ukraine situation all weighing heavily on investors, the indices have now hit year-to-date lows as the chart below shows.

Source: Statista

While stock market indices dumped, safe-haven assets and commodity benchmarks rallied strongly as the Russian invasion began. Traditional safe-haven asset gold jumped by 3.3% while silver performed even better, jumping by 5.4%. Elsewhere in precious metals, platinum, and palladium also jumped, increasing by 3.7 percent and 10.8 percent, respectively.

In commodities, the Brent oil price benchmark rose 8.2 percent to continue its strong rally. U.S. benchmark WTI crude was strong, up 8.8% while natural gas was stronger still, up 9.4%.

Bitcoin, however, showed no signs of being a safe haven, dropping by 6.1% at 5 a.m. Thursday. Stock markets continued to slide as well, the British FTSE 100 dropping 3.1%, while the German Dax slid 5.2%.

Source: Statista

Not a digital safe haven yet

Bitcoin investors have long made the argument that Bitcoin is best understood as digital gold. They have even made the argument that Bitcoin is a safe haven asset, similar to gold. However, if this was the case, then Bitcoin should perform well during times of extreme macro uncertainty – and this has not been the case.

In March 2020, the week that the World Health Organization declared the COVID-19 Coronavirus a pandemic, all global financial markets tanked. Bitcoin was hit especially hard, crashing to $3,800, a drop of nearly 40% in one day, disproving Bitcoin’s status as a safe haven.

While yesterday’s drop wasn’t as extreme, Bitcoin again failed to act as a safe haven, eventually falling by 8% to just above the US$34,000 price level. Bitcoin has since recovered ground and is now back above $38,000.

Source: BNC

With Bitcoin’s sluggish performance in 2022, and gold’s rally in the face of the Ukraine conflict, gold has actually performed better than Bitcoin year to date as the chart below shows.

Source: Coindesk

However, gold bugs should be wary of celebrating too early. While gold did indeed perform well, jumping 3.3% after Putin’s speech, within 12 hours, gold was falling again, giving away almost all of its gains.

Gold Chart, Source: Live Gold

Gold-backed crypto assets such as Tether Gold and Pax Gold mirrored the gold charts, jumping as gold rallied, before selling off and drifting back to where they started.

Is the crypto bottom in?

With gold dropping and Bitcoin rising, trader Alex Kruger says that for now at least, the bottom is in for stocks and crypto, and the top is in for precious metals. Kruger wrote on Twitter that while things could get worse (China invades Taiwan, Russia invades more countries, Nukes), barring those scenarios, the market has already taken in the worst-case scenario, and brushed it off.”