In times of uncertainty, traders and investors have traditionally flocked to ‘safe haven’ assets that act as an anchor against stormy markets. These tend to be traditional conservative choices—gold, land, corn, etc—that are insulated from wider market turmoil. The latest incident to demonstrate this is ‘Italexit’—the possibility of Italy leaving the Euro, which as would be expected has created uncertainty in global markets, sending global stocks and the Euro tumbling.
Less expected perhaps, was the simultaneous rise in the price of Bitcoin, which according to some analysis behaved like a traditional safe haven asset in response to crisis—jumping almost 4% with a $200 gain in less than an hour.
Famous figures like Binance CEO Changpeng " CZ" Zhao also commented on the event, but is the price movement a correlation, or just coincidence?
The rise of digital gold
There are many who argue that instead of fulfilling Satoshi’s vision as a “peer-to-peer version of electronic cash”, Bitcoin in fact occupies a similar niche to gold, being scarce, easy to store, easy to transfer, and only lacking thousands of years of historical precedence as a safe haven asset.
As a refuge in times of economic turmoil, gold is favoured for its stability and clear consensus on value. Bitcoin, however, is also proving to be an alluring alternative in times of crisis, especially for the young. Surveys by Blockchain Capital last year suggested that millennials were increasingly favouring Bitcoin over gold.
For the young, comfortable with holding value as intangible data, Bitcoin might be a preferable store of value, and one that can contend with traditional safe haven commodities like gold.
In their 2017 Gold Survey released in January, Thomson Reuters analysts wrote that “the rapidly accelerating popularity and price in cryptocurrencies, such as Bitcoin…diverted substantial amounts of capital away from precious metals last year,” suggesting that the cryptocurrency is making moves on a commodity that has functioned as a store of value for millenia.
A digital safe haven
If we are to believe the reports of mainstream media, then historic price movement shows a number of incidents in which Bitcoin prices have surged in response to geopolitical or macroeconomic turmoil.
Cyprus EU bailout, 2013
Speculation can be traced back to 2013, when CNNMoney suggested that a climb of 80% in the price of Bitcoin was precipitated by concerns over the financial state of the small Mediterranean nation Cyprus.
Greek debt crisis, 2015
A few years later, more economic uncertainty in Europe led Reuters to report that Bitcoin’s volatility was not just normal fluctuation, but a reaction to news that Greece was likely to default on its debts.
US Government Shutdown, 2018
Earlier this year, the US Government shutdown led some to suggest that, in the words of Scott Galloway, Bitcoin was acting as a “Chaos Proxy” that responded to loss of faith in centralised institutions.
A valuable commodity, a useless currency?
Despite recent technical developments that promote the use of Bitcoin as a currency for daily transactions, these price movements suggest that in fact Bitcoin is more aptly categorised as a commodity. This view is supported by recent events in the cryptosphere, with wild price fluctuations and high fees leading the likes of Microsoft and Steam to axe crypto payment options (although Microsoft have since restored this option.) Meanwhile, a top South Korean court have recognised cryptocurrency as an asset with measurable value, if only so it can be confiscated from criminals.
Those who believe that Bitcoin is first and foremost a currency, might argue that before widespread adoption can occur, Bitcoins value must be universally recognised in the form of a commodity. With the coming regulation, greater trading volume from institutional investors, and ever-growing infrastructure, volatility will inevitably reduce. At which point, Bitcoin might come closer to fulfilling Satoshi’s original vision of a “peer-to-peer electronic cash system”.
In other words, becoming a commodity could be one step towards becoming a currency.