Trending Bitcoin News and Market Sentiment March 26th, 2020: Bitcoin Is Still a Safe Haven Asset, But For a Situation Far Worse Than This

“So it’s disappointing, to say the least, that after the fastest market rout in recent history, an asset built to be a safe haven … dropped 31 percent while the S&P dropped by a quarter. The daily correlation between the S&P and bitcoin went from slightly negative in February to 0.6 in March. Bitcoin barely responded to the Federal Reserve cutting rates to zero, and shrugged off other monetary interventions.”

But he then goes on to explain that safe haven assets are really categorized to fit into three different scenarios: a safer version of risky bets, assets that people borrow in good economic conditions and assets built specifically for Armageddon scenarios.

The first option, he says, works in a hedge when a slight slowdown is in effect. He gives examples of companies with high margins, or corporate bonds instead of equities, or investment in a company producing consumer staples. High-end consumer items or luxury products do particularly badly in a slowdown, but daily necessities won’t suffer a lack of demand — tinned food and toilet paper are some essentials!

In the second option, he says that the classic safe asset are usually safe because investors tend to borrow them to make other riskier investments. So a 10-year corporate bond, for example, means you’re betting that the company has a good credit and will get good interest rates. The Japanese yen as well has been a safe bet in this way because the Bank of Japan has always set low interest rates (even to the point of negative interest rates these days). So people borrow yen to invest in currencies with higher interest rates, and when bad news happens, and trades settle, people end up buying that safer asset.

Now the third scenario, the end of the world. This, Hobart says, is what Bitcoin is made for. And contrary to the unlikeliness of and end-of-world scenario might be for many of us, one only has to look back in the past century to find multiple instances where countries enjoying a good economy and good political stability can suddenly find itself in disaster.

Hobart gives the example of French financier Felix Rohatyn whose family fled France as Nazi Germany invaded in the 1930s. Gold, smuggled out in toothpaste tubes, turned out to be their savior when they lost everything else. Imagine, in more recent times just in the past decade alone, where entire countries descended into total chaos and war, like in South Sudan or Syria, or even in Venezuela where civil unrest has turned its national bolivar into all but worthless paper money. But if you could easily flee that situation with, say a USB in your pocket, or a memorized seed phrase to restore your Bitcoin wallet when you are safely out of danger? You would protect your value and your money easily.

And the author continues to say that the situation now may likely get worse and deepen, but, like the 1950s flu pandemic, the recovery to the economy could be just as swift as it crashed. He says that for now, investors won’t be looking to invest more into Bitcoin but will be liquidating assets for hard cash to pay for bills and necessities. He ends his discussion by saying:

“They do, however, need to scramble for dollars to service debts, so they’ll sell anything – stocks, bonds, real estate, crypto – and convert it into an asset they can use to pay the bills. Bitcoin’s drop doesn’t disprove the safe haven argument. It just shows us bitcoin is designed to be a safe haven from a worse storm.”