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Why can't Bitcoin be a reliable safe-haven asset?

And Venezuela will not be the only country

Bitcoin (BTC) has dropped by as much as 50% in the past few days, experiencing massive liquidations in what looks like a surrender event. However, BTC still has some characteristics of a safe-haven asset.

Bitcoin is unreliable due to the days of unusual trading, panic selling

BTC is not reliable in the short term because of large gains or losses during the day. However, owning Bitcoin in the last decade has shown its potential to offset other economic risks. Now, BTC is entering a period of high volatility, losing confidence while remaining stable enough. But overall, Bitcoin may have useful features during times of crisis for traditional assets.

"Overall, Bitcoin has moved in a way that seems to reflect what happens in other markets. But there are exceptions – the whole year doesn't suit this model. Data shows that over the years, Bitcoin has sometimes served as an effective alternative to traditional markets, "Longhash's most recent analysis. disclosure.

Bitcoin price chart against the DOW index, from 2010 to March 2020. Source: Longhash
Bitcoin price chart against the DOW index, from 2010 to March 2020. Source: Longhash

In general, the money flowing into Bitcoin reflects the belief in the economy in general. Some exceptions include 2014 – the time when the Mt. Gox caused prices to fall over the course of a year. However, BTC can be viewed as a new asset during the discovery phase, with any feasible price move.

The effect of liquidation on future markets also makes Bitcoin less reliable. The property does not have an emergency switch, except for regular technical emergencies on exchanges.

BTC can be a safe haven in developing countries

Bitcoin is not a safe haven in the sense that money flows into the market when other assets plunge. One of the reasons for that could be logistics – even retail investors cannot improvise too quickly to reserve BTC. But there is one aspect of Bitcoin that seems to be operating at a time of crisis. However, the number 1 cryptocurrency is used locally to compensate for other lagging markets. In the 2017 bull market, Korean investors turned to cryptocurrency assets to make up for the lagging local market. For others, Bitcoin is a one-time speculation opportunity.

The recent sell-off also shows that BTC can provide a quick source of emergency money, even when sold at low prices. Hold some BTC is also an alternative payment tool, as the Bitcoin network has not stopped working during the sell-off.

Bitcoin is also relatively safe in countries where local currencies are even more volatile and less reliable. The king has been working to offset inflation and weak currencies in Venezuela, Iran and, in part, Turkey. BTC may be much more risky than stock indices in developed economies, but it can work to compensate for economic slowdown in developing countries.

The use of BTC is also a source of informal dollarization. And because price discovery is still taking place in advanced economies, BTC holders may benefit from a higher economic standard. LocalBitcoins also showed anomalies in price detection, when at some point the price of Bitcoin soared above the global average as a compensation for local economic and monetary risks.

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According to Bitcoinist
Translated by ToiYeuBitcoin

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