Is BTC Really a Safe Asset During the Coronavirus Pandemic?
The coronavirus pandemic appears to be a test for Bitcoin and its status as a safe-haven asset. If Bitcoin is considered such a currency, its price should see a similar rise to U.S. Treasuries and gold. If so, then we can safely say that Bitcoin is extending its power and earning people's trust.
We compare Bitcoin with four assets widely considered safe in the market, the US dollar, the S&P 500 index, gold and the US 10-year Treasury bond.
Correlation analysis shows that during the set time period from January 2017 to March 2020, there is no close relationship between Bitcoin price changes and these four assets, and there is no related fluctuation-related trend.
So, the time frame needs to be narrowed down to answer the main question: Is Bitcoin a safe asset? To find out, the time frame of the analysis is locked to February-March 2020. Take a closer look at the period and examine the performance and correlation of these five assets.
BTC-USD related
S&P 500 Correlation
U.S. 10-Year Treasury Bond Correlation
BTC-Gold related
First a quick recap of the conditions that must be met by Bitcoin, in analysis, for this asset to safely claim to be a safe-haven asset and prove itself worthy of its moniker: digital gold.
If Bitcoin is considered a safe-haven asset, its price action should be similar to that of gold and U.S. Treasuries, which are considered by many to be safe assets. In other words, the price of Bitcoin should increase during the current coronavirus pandemic. Why? Because as more and more people choose to invest in Bitcoin to protect their capital from other assets, the demand will naturally rise.
One analysis you absolutely cannot miss is comparing Bitcoin and the US dollar. In theory, in the current monetary environment, the U.S. dollar should weaken and Bitcoin should strengthen. Why? Many governments, especially the United States, have printed trillions of dollars to overcome the recession caused by the coronavirus. This is known as quantitative easing (QE).
A side effect of QE is that it reduces the real value (purchasing power) of the dollar due to the increase in the number of dollars. This is in stark contrast to Bitcoin, which has a fixed supply by design. In fact, after the 2008 financial crisis, Bitcoin was primarily considered a means of value protection against government inflationary policies.
According to the analysis, Bitcoin is not a safe asset, at least not amidst the coronavirus pandemic. Extreme uncertainty in financial markets has led to a greater preference for the dollar.
However, it is too early to say whether Bitcoin is a safe-haven asset or not. Judging from the number and volume of transactions on the network, there are still a large number of Bitcoin believers in the market. Bitcoin’s independence from traditional assets makes it a great hedge asset.
In the long run, people will prefer Bitcoin to USD, because the total amount of Bitcoin is fixed, while USD is not.
Extended Information - Asset Characteristics
USD: When the market is extremely uncertain about the future, USD is the first choice because its value is relatively stable and it is the most liquid and useful store of value.
S&P 500: Consists of companies representative of U.S. industries. Stocks included in the index are considered safer than stocks not included in the index.
Gold, U.S. Treasuries: Considered safe assets, so history tells us that when people feel fear, the prices of these assets go up.
