Bitcoin

Why Bitcoin Is Not a Safe Haven Asset But a Risk Asset

Published

2 years ago

March 8, 2022

bitcoin to Nigerian Naira - Investors King

Between 2020 and now, financial markets experts have attributed the characteristics of gold to Bitcoin and gone on to describe the digital asset as the new safe haven, or digital gold.

In fact, JPMorgan Global Market Strategist Nikolaos Panigirtzoglou, in a note to clients on Oct.6, 2021, said “Bitcoin’s allure as an inflation hedge” was the reason for growing investor interest in the unregulated digital asset.

An inflation hedge is an investment that will hold its value even when prices go up or the currency’s worth goes down. It means investors were drawn to Bitcoin because of its attractiveness as a store of value, just like the world’s most reliable safe-haven asset, gold.

But the Russia-Ukraine war has shown Bitcoin, the world’s most dominant cryptocurrency, to be a risk asset. A risk asset, as the name implies, is any asset that has a significant degree of volatility or risk.

Just like other risk assets like equities, real estate or currencies, Bitcoin plunged with the Russian invasion of Ukraine and has remained largely subdued even when gold rose to an 18-month high last week.

The Reason for This Bitcoin Misconception

It was the same in January 2020, when nations started announcing Covid-19 restrictions to halt the spread of the pandemic, the value of Bitcoin declined with other risk assets as shown in the chart below, whereas the value of gold surged as shown in the second chart.

Here is where it gets interesting. Bitcoin at the time was trading well under $10,000 per coin but started gaining momentum once investors, largely retail investors, started factoring in Bitcoin halving. Bitcoin halving is a process in which the reward of Bitcoin miners is halved after building additional 210,000 blocks. Therefore, since miners’ reward is the only means by which Bitcoin is available for purchase, the value of Bitcoin rises thanks to the decline in supply.

It was Bitcoin Halving that occurred in May 2020 during the peak of Covid-19 that bolstered the value of Bitcoin above $22,000 a coin and subsequently attracted institutional investors already struggling to find the right investment at a period when all economies were closed. The size of their investments coupled with the scarcity created by Bitcoin Halving was what led to the Gap, circled in the first chart (institutional investors entry).

However, because this happened at a period of high global uncertainty and risk, and coincidentally during COVID-19, experts with little or zero knowledge of Bitcoin technology started pushing safe haven narratives.

Here is Why Bitcoin is Not a Safe Haven Asset or Digital Gold

A safe haven asset is that asset that can at least retain its value or appreciate during financial markets downturns. Please note that while it does not guarantee positive returns, it maintains its value in a crisis.

In fact, from the second chart, Gold took off immediately COVID-19 broke out in Wuhan, China in November 2019 and rose above $2067 per ounce by June 2020 while Bitcoin continued to struggle until after halving as seen in the first chart.

As clearly shown in the two charts, the value of Gold started declining in June 2020 when tech stocks started thriving on growing remote workspace and gradual adaption to the new normal. Bitcoin, NASDAQ, Standard and Poor 500, and other risk assets were rising simultaneously as shown in Chart 1, 3, and 4. Again, a critical look at the last few weeks of the three charts revealed that Bitcoin, NASDAQ and Standard and Poor 500 have been on the decline in response to the Federal Reserve projected rates hike and the Russia-Ukraine war. Indicating that despite Bitcoin’s huge returns when compared to traditional assets, it mirrored the characteristics of risk assets than it has been established.

Also, since Russia invaded Ukraine, Bitcoin has failed to replicate the 2020/21 run even with people projecting that Russia will turn to cryptocurrency to avoid the impact of sanctions. The reason is not far-fetched, this is not a halving year. The next Bitcoin Halving is in 2024. Suggesting that Bitcoin might be at the beginning of a bearish period despite global happenings.

It was based on these modalities that I established how Bitcoin could hit $50,000 a coin as early as 2020. Here is an excerpt of the article titled, Bitcoin Halving: Nigeria, Others Get Ready For Uncertain Bitcoin Future, written on May 11, 2020, “Unlike the Central Banks, Bitcoin is not manually regulated rather its algorithm has been engineered to gradually reduce the number of Bitcoins that can be created over time.

“Therefore, while the supply of Bitcoin will continue to reduce, its demand will remain constant. A process that if eventually worked could see the digital currency hitting $50,000 a coin or even $1 million as more money would be chasing fewer coins.”

Bitcoin thrives on this methodology and not the assumption that it is a store of value or inflation hedge.

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Samed Olukoya

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Bitcoin

Bitcoin (BTC) Holds Steady Above $70,900 as Grayscale Bitcoin Trust (GBTC) Outflows Increase

Published

4 days ago

April 12, 2024

Samed Olukoya

Bitcoin (BTC) maintains its stronghold above $70,900 despite increasing outflows from the Grayscale Bitcoin Trust (GBTC).

As reported by CheckonChain, a total of $124.9 million flowed out of GBTC recently, contrasting with modest inflows into other investment vehicles like Fidelity’s FBTC and Bitwise’s BITB.

This trend has prompted speculation within the market regarding its impact on Bitcoin’s price dynamics.

While some believe that continued outflows from GBTC may exert selling pressure on BTC, driving down prices, others adopt a more cautious approach.

They argue that such outflows are expected from GBTC, given its relatively higher fee structure compared to alternative investment options.

Traders, however, seem to be pricing in a degree of stability for Bitcoin in the coming weeks, with optimistic forecasts on platforms like Polymarket.

According to predictions, there’s a 60% chance that BTC will reach $75,000 by the end of April, while the likelihood of it hitting $80,000 stands at 32%.

Despite the varying sentiments among market participants, Bitcoin’s resilience above the $70,900 mark underscores its status as a cornerstone asset in the crypto space.

Investors continue to monitor developments closely, navigating through the complex interplay of factors influencing Bitcoin’s price trajectory.

Bitcoin

Bitcoin Tests $66,000 Amidst Volatility Forecast

Published

4 weeks ago

March 22, 2024

Samed Olukoya

As Bitcoin surged to a $66,000 price level during Asian trading hours, cryptocurrency markets brace for heightened volatility, with market observers predicting turbulent times ahead.

The cryptocurrency’s price volatility has been a subject of much discussion, particularly in light of recent events.

Semir Gabeljic, Director of Capital Formation at Pythagoras Investments, who highlighted the ongoing volatility cited a recent drawdown of 10% fueled by spot Bitcoin ETF outflows from GBTC, totaling approximately $300 million on March 20.

Gabeljic emphasized that such drawdowns typically occur in the lead-up to Bitcoin halving events, signaling a potential for increased volatility in the near future.

Meanwhile, the CoinDesk 20 (CD20), which tracks the world’s most liquid digital assets, experienced a minor dip of 0.5%.

However, amidst this overall market movement, CoinDesk’s Digitization Index (DTZ) saw a notable uptick, led by protocols like Ethereum Name Service (ENS), which rose by 2.7% during Asia trading hours.

Singapore-based trading firm QCP Capital noted the current consolidation in the market, with Bitcoin and Ethereum trading within a relatively tight range.

They suggested that the market might see a pause in activity over the weekend following the volatility leading up to the previous weekend’s Federal Open Market Committee (FOMC) meeting.

Also, QCP Capital highlighted the continued outflows from the Grayscale Bitcoin Trust (GBTC), expecting a fourth consecutive day of BTC spot exchange-traded fund net outflows.

The firm also pointed out a widening discount on Grayscale’s Ethereum Trust (ETHE) and the market’s diminishing expectations for the approval of a spot Ethereum ETF.

With Bitcoin’s test of $66,000 and ongoing market dynamics, cryptocurrency investors and analysts remain vigilant, anticipating further fluctuations in the days to come.

Bitcoin

Binance CEO Forecasts Bitcoin Surge Beyond $80,000 on Institutional Inflows

Published

4 weeks ago

March 18, 2024

Samed Olukoya

Binance Chief Executive Officer Richard Teng has set his sights on Bitcoin surging beyond the $80,000 price level on the back of rising institutional investments into crypto-backed exchange-traded funds (ETFs).

Speaking at an event in Bangkok on Sunday, Teng highlighted the significant impact of the launch of Bitcoin ETFs in the United States earlier this year.

He noted that this development has attracted a considerable influx of institutional investors, propelling fresh funds into the cryptocurrency market.

Teng expressed confidence in Bitcoin’s upward trajectory, emphasizing that “we’re just getting started.”

Initially estimating Bitcoin to reach around $80,000 by the end of the year, Teng now believes that the cryptocurrency’s price will surpass this milestone.

He attributed this bullish outlook to a combination of decreasing supply and sustained demand within the market.

However, he cautioned that the rally wouldn’t be without its fluctuations, suggesting that the market’s ups and downs would ultimately benefit its overall health.

Bitcoin has already surged by an impressive 56% this year, reaching a record high of nearly $73,798 last week.

Despite concerns among some investors about a potential bubble, Teng remains optimistic about Bitcoin’s future trajectory.

Teng’s forecast comes in the wake of his appointment as CEO of Binance, succeeding co-founder Changpeng Zhao in November following the company’s $4.3 billion settlement with US authorities.

With relentless inflows into US spot Bitcoin ETFs since their approval in January, Teng expects further institutional adoption in the near term, with more endowments and family offices anticipated to increase their allocations into Bitcoin ETFs.