Is it a safe haven now?
Bitcoin buying surged on Tuesday morning with the king of cryptocurrency climbing above $20,000 for the first time in three weeks.
At the same time, in terms of price, returns are increasingly being traced to gold according to Kaiko Research. its 30-day performance is now at a high not seen in over a year, raising the question of whether investors now view it as a safe haven.
Bitcoin, like gold, finally reached the point where investors see it as having an inflation hedge?
Maybe, maybe not.
So far this year, bitcoin (BTC-USD) has fallen a whopping 58%, losing more than $500 billion in market value, with the majority of that decline occurring from April to July. The large decline was triggered by the central bank’s decision to reduce interest rates and tame inflation.
Bitcoin is currently trading at $20,100, almost 4% rise on the day, flat over the past 7 days and more than 4% higher over the past three months. After the big selling events throughout the second quarter, the largest digital coin and other cryptocurrencies have outperformed stocks and gold.
Analysts are not ready to say the trend indicates that bitcoin’s status as a risky asset that trades closest to stocks is meaningful – although they admit that the higher correlation to gold could be an encouraging sign for investors seeking portfolio diversification.
Gold, on the other hand, has not held up well during the last year’s inflation either. From January to March, gold (GC=F) rose 11% to a peak of $2,040 an ounce. Over the past 6 months, it has fallen 14% to $1708, a 5% year-to-date decline as of Tuesday morning according to Yahoo Finance charts. The latest US inflation reading for August was higher than expected at 8.3%.
To be sure, while bitcoin doesn’t act as a safe haven, it has been shown to outperform gold and stocks over the past three months, and more recently, it’s not beyond the realm of possibility that some investors could seek an escape the. volatility in other assets.
Since July 1, Bitcoin is up more than 4% while gold is still down more than 3%, the S&P is flat and the Nasdaq is showing a slight increase (+1.2%).
Over the past year, bitcoin has tracked closer to the Nasdaq than gold, and while its momentum has “slowed down a bit” over the past two weeks, it remains the closest reflection of the digital coin’s performance, said Clara Medalie, director of research at Kaiko to Yahoo Finance.
Bitcoin has avoided some of the sell-off in the stock market, but it is “too early to declare” that investors see it as a safe harbour, Medal explained.
“Both gold and bitcoin have performed poorly as safe havens this year amid a strengthening US dollar, and their correlation is more likely linked to Bitcoin’s low volatility,” she added.
A break with stocks could turn out to be more of the effect of bitcoin leading or lagging stocks, Oandas Moya said. Leading does not mean performing better. Instead, it separates the timing of when two assets move in the same direction.
The trend reversed yesterday with crypto after a rally started on Monday over stocks yesterday.
A resurgence of bitcoin’s safe-haven narrative doesn’t feel meaningfully supported in data yet, Noelle Acheson, crypto analyst and author of the newsletter, Crypto is Macro Now, told Yahoo Finance.
“[Crypto trading] volumes are still low (although picking up) and there is no sign yet of strong retail interest. To believe it [bitcoin’s] The store-of-value thesis is becoming more mainstream,” Acheson added. “I need to see higher volumes in addition to higher retail participation.”
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David Hollerith is a senior reporter at Yahoo Finance covering cryptocurrency and stock markets. Follow him on Twitter at @DsHollers
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