Bitcoin and cryptocurrencies have always been considered as a safe haven currency. However, in practice their behavior has been highly volatile due to the global market situation. This confirms that Bitcoin and cryptocurrencies in general are no longer a safe haven asset today, which does not mean that they can be in the future.
A reserve asset does not lose its value in the face of uncertainty, a perfect example of this is gold, which does not have much fluctuation even when market shocks happen, and in a certain way, maintains a stable value over time. In order to be considered a reserve asset, Bitcoin should have stability, both in the short and long term.
Despite this, it is important to emphasize that Bitcoin and cryptocurrencies are assets that appreciate in the long term, which is not enough to become a safe haven asset, given that in the short term they are subject to shocks that strongly impact their price.
This was evidenced on Thursday, February 24 when, after Russia’s attack on Ukraine, the crypto market capitalization fell to 1.6 trillion dollars, a drop representing 7%, and then recovered to 3%. This translated into the fall of the main cryptocurrencies, far exceeding, in some cases, 15%.
Bitcoin would have shown reliability as an investment asset and a good value to fight inflation. But, due to the current uncertainties, the cryptocurrency is seen as high volatility. This makes it difficult to think that Bitcoin or other crypto can act as a safe haven asset at present.
But, what do Bitcoin and other cryptocurrencies need going forward to become a store of value? First of all, Bitcoin needs to reach a capitalization like that of gold today, and for this it needs to grow by at least US$500,000 in its Bitcoin price to achieve such liquidity that these market shocks do not impact its price.
Global markets and indices have reacted to the start of the Russian-Ukrainian conflict. Sharp falls have been seen, while safe haven values have been reflected in gold, energy commodities such as oil and natural gas futures and government debt.
