There has been a lot of talk about investors looking to Bitcoin as a safe haven for their investment portfolio. Safe haven markets are very small and hard to get into. Bitcoin may not fit that bill as perfectly as some people think it does.
Now that the Brexit doom scenario has happened, there is a lot of uncertainty across the markets. Gold is surging, Bitcoin is holding stable, and capital markets are seeing significant losses. Notably, the Pound Sterling and Yuan are losing value right now. But unlike what many people expected, investors are not exactly fleeing to Bitcoin in droves.
Understanding The Safe Haven Term
That being said, Bitcoin is often referred to as a “safe haven,” which by definition is “an investment expected to retain its value or even increase in value in times of market turbulence.” Bitcoin seems to fit this bill, albeit the chances of increasing or decreasing in value are theoretically equal.
Gold is an obvious safe haven asset, and it is widely recognized as a store of value. Other precious metals may fall into the same category, as well as government bonds. Do keep in mind investments considered as safe havens will alter over time, though. Moreover, there is no safe investment for all down market traders. It is also possible for assets to be mislabeled as a safe haven, thanks to fortuitous buying and selling.
This is bitcoin's coming out party as a global safe haven investment. Amazing
— Barry Silbert (@barrysilbert) June 24, 2016
Bitcoin will often be mislabeled as a safe haven, mostly due to the fortuitous buying and selling opportunities. There is always a chance for the Bitcoin value to go up or down at any given time. Executing trades at the right time can result in healthy profits for experienced traders. However, from a short-term investment perspective, Bitcoin is not such a safe haven, unless one can influence the market directly.
Several years ago, Bitcoin was far more volatile than it is today. Granted, the value of this cryptocurrency has been fluctuating quite a bit over the past few weeks. The profits or losses to be made, however, were much bigger in 2013 than they are right now. If there is minimal room for profit, it is doubtful investors will see Bitcoin as a safe haven.
If an investor were to put in ten million of his or her funds into Bitcoin, there would be an immediate reaction. At this time, that would result in over 15,550 bitcoin being bought in one go. Such a movement would alert markets and potentially trigger others to sell their coins. Doing so could negate the short-term gains the investor had hoped for. If he or she then decides to dump their coins again at a small loss, the Bitcoin price would take a significant hit.
Bitcoin’s Fine The Way It Is
In the end, Bitcoin enthusiasts have to keep in mind fancy buzzwords – such as safe haven markets – are only vaporware in the long run. Whether or not cryptocurrency is a safe haven, does not matter. Bitcoin has been around for seven years, and it is not going away anytime soon. Investors still need to warm up to the idea of cryptocurrency, but that is OK.
Growing the Bitcoin ecosystem should not be rushed either. If investors were to obtain large chunks of the available coin supply, they could collude and try to exert some control over the network. That is not a favorable situation either by any means. Slow and steady will win this race, and Bitcoin is doing just fine in that regard.
What are your thoughts on Bitcoin [not] being a safe haven market? Let us know in the comments below!
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