Is bitcoin a ‘safe-haven’ asset on par with gold?
Having risen steadily since 2015, in the last two weeks the bitcoin price has been on something of a roller coaster ride, impacted by uncertainty surrounding the global economy, by the DAO hacking incident, which caused damage equivalent to $40 million (around Yen 4 billion), and by the UK’s historic decision to leave the EU.
The bitcoin price fell sharply because of security concerns, but then investors, viewing bitcoin as an “global asset” like gold or US Treasuries, flooded in, and the price rose sharply.
Opinion on bitcoin is split between the view that “it is too early to view a virtual currency as a safe-haven asset” and the view that “it is only a matter of time before its standing as a stable asset is established.”
Does Brexit offer an opportunity for virtual currency development?
Looking bitcoin price trends over the last 12 months, having been been close to $250 (around Yen 25,500) for a long time, at the beginning of October 2015 it rose to the $400 level (around Yen 41,000). By the end of May, it had risen to the $500 (around Yen 51,000) level and on June 17 it reached a peak of $768.24 (around Yen 78,000) just before the DAO hacking incident broke, falling back sharply to close at $631.72 (around Yen 64,000).
The rate was $631.99 (around Yen 64,000) on the day of the EU referendum in the UK, but it edged up again from the day after the result was announced and, as of 26th it is at $673.09 (around 68,000) – a very strong move.
The turbulence in the financial markets immediately spread among consumers with the result that, along with bitcoin, investors bought the yen and gold.
Against this background, in its latest research report, the US asset management company Needham & Company warns that “bitcoin is a volatile high risk investment product.” It urges caution, saying “it is too early for it to be treated in the same way as conventional safe-haven assets such as gold.”
However, others, such as Gene Kavne, the CEO of the bitcoin wallet company iPayYou, hold the polar-opposite view. According to Kavner, “the failure of financial policy in various countries has reduced the value of cash”. He is hopeful about the future of bitcoin and other virtual currencies, saying that “virtual currencies without government intervention are likely to mature as safe-haven assets in the future.”
Needham & Company did acknowledge that Brexit, which has rendered the outlook for the global economy very unclear indeed, “will have a positive impact on the virtual currency market”.
This may indeed be a great opportunity for the progress of virtual currencies, but how long it will continue likely depends entirely on future global economic trends.