For a long time, traditional investors have always regarded gold as a safe-haven asset, which can withstand market turmoil and provide a certain degree of immunity and security. However, in the past few months, Bitcoin has been associated with similar utilitarian functions as a store of value and a long-term investment tool.
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In the past few weeks, with the market in trouble, questions have been raised again about whether Bitcoin is worth the safe-haven asset title.
In the latest Blockchain Insider podcast, Coinfloor CEO Obi Nwosu highlighted the challenges faced by cryptocurrencies such as Bitcoin and gold in maintaining their hedging position. Regarding the price crash of the crypto market on March 12, today, there are polarized views on the reasons for its occurrence and the meaning of Bitcoin in the long run.
According to Nwosu, the liquidity crisis faced by large investors is one of the reasons that the Bitcoin sell-off has caused prices to drop by almost 50%.
According to the CEO of CoinFloor, for large traditional investors, Bitcoin provides much-needed liquidity, while traditional assets perform poorly.
"If the price goes down and they are liquidated, they will lose a lot of money, so it makes sense for them to add a little money to their positions to ensure they are not liquidated."
Nwosu said this means they have to get funding from other sources, starting with the most liquid source first, "this is why they withdraw funds from Bitcoin because Bitcoin or other cryptocurrencies they are investing in have very High liquidity, they also cash out of gold. "
The CEO also emphasized that, by design, Bitcoin and gold are used to store value assets. He argued,
"As of December last year, we entered Bitcoin just because we thought of Bitcoin as a store of value. This is its practical purpose. It is designed for these situations. Bitcoin and things like gold will be in the future. Shown in a year or so, demonstrating that they can become actual stores of value. "
Source: Bitcoin-Gold Relevance, skew
According to market data from Skew, although the correlation between Bitcoin and gold has fallen sharply from 55% to 25% over the past week, it has now risen again. At the time of writing, this percentage is 32%.
But, as has been determined, for Bitcoin to consolidate its credentials as a safe-haven asset, it is crucial to understand how it responds to geopolitical and socioeconomic events. In fact, a recent study from the University of Pretoria pointed out that increased geopolitical risk (GPR) could actually benefit the price of Bitcoin. it says,
"Because investors see Bitcoin as a hedging product to hedge against global uncertainty, an increase in GPR levels may have a positive impact on the price of Bitcoin."
According to research, among the five leading cryptocurrencies, Bitcoin has experienced a sharp rise or price discontinuities, all of which are in sync with the rising level of GPR.
Despite such research, the safe-haven story about Bitcoin remains volatile. Galaxy Digital investor and CEO Michael Novogratz recently noted this, recognizing that Bitcoin's price movements over the past few weeks may have reduced investor confidence in cryptocurrencies as a hedge. He says,
"Bitcoin's newly adopted narrative is used as a store of value as part of the future of building a decentralized Internet."