by Greg Barker
Wednesday, 23
February 2022
Chart
11:00

The Ukraine crisis proves Bitcoin is not a safe haven

The cryptocurrency has had a torrid time in 2022
by Greg Barker

The “narrative that digital Gold is a better way to escape has not panned out,” declared market commentator Holger Zschaepitz, in the aftermath of Putin’s small “foray” into the Donbas region of Eastern Ukraine on Monday.

By “digital Gold,” he was, of course, referring to Bitcoin, one of the many ultra-risky assets that have been touted as safe-haven investments, but instead have been plunging into oblivion since the start of 2022.

It feels like, at some point, that it’s going to become very tiresome having to go through a seemingly endless list of things of what Bitcoin is not. So far it’s been advertised as a payment system, a currency (which requires being a reliable unit of account, store of value, and medium of exchange), digital gold, an inflation hedge, and, in the recent case of the Canadian Freedom Convoy, as a way of “banking the unbanked”.

Now, we can add “acting as a safe haven during rising geopolitical tensions” to its long list of failures. In the various situations where safe havens are supposed to store purchasing power, Bitcoin has failed, usually in a speculator fashion, while time-tested ones like gold and the U.S. Dollar have delivered.

During the Covid-19 market panic in March 2020, arguably the most volatile period in recent market history, Bitcoin experienced a -38% intraday plunge, compared to gold’s 6% and the dollar’s 1% drop. Just last week, when National Security Adviser Jake Sullivan told staffers to “get out” of Ukraine “now”, gold rallied almost 2%, while Bitcoin fell sharply.

Bitcoin, however, still faces more pain ahead. After failing to gain value in the face of record-high inflation, it must now prove itself in the reverse scenario. Following an initial inflationary panic, inflation expectations have peaked, and the market for U.S interest rate futures (what the market expects interest rates to be at a certain time) has stalled, indicating that inflation has already reached its high point.

A quarterly backtest (i.e. the historical performance of an asset) shows that Bitcoin will experience the worst drop in deflation. But it is only when interest rates and oil prices start to plunge (neither of which have) that this will become apparent. Until then, we’ve not fully transitioned into a full-on risk-off scenario. That is when Bitcoin will truly feel the pain.

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SULPICIA LEPIDINA
SULPICIA LEPIDINA
4 months ago

Much better to have invested in Masks & PCR. The mass hysteria made it the perfect investment opportunity. Exceeding even the East India Company and the Slave Trade to name but two.

Vijay Kant
Vijay Kant
4 months ago

The latest thesis on Bitcoin is that it is a digital currency for the coming Metaverse! A virtual currency for a virtual world for my virtual avatar, as it were. Does this mean that Bitcoin’s value only exist in a virtual world, and that in the real world its value is just an imaginary number?

Last edited 4 months ago by Vijay Kant
Justin Clark
Justin Clark
4 months ago

Bitcoin is not money, its property.
The crypto markets have been all over the place – absolutely horrendous – so much so, my 1 BTC is now worth 1 BTC.

If someone wants my 1 BTC (I don’t have one btw – just an example), they can’t rob me of it (unless I leave it stored on a centralised crypto exchange) and I can hand it down to my family without any middle man being involved.
BTC price has crashed 9 times at least but recovers stronger each time.
Only 21M BTC will be in circulation (ok far less right, lost passwords etc..) so my 1 BTC, whatever happens to fiat currency, or wars, will always be worth 1 BTC. Is it BTC that is fluctuating or QE-based fiat currency?
Canada proves your money ain’t yours. CBDCs will prove that and track and restrict your every spend. There is some value in BTC given this – how much, well that depends on confidence.
All BTC holders are confident.
https://www.youtube.com/watch?v=1ToffjIo6hk

Last edited 4 months ago by Justin Clark
Galeti Tavas
Galeti Tavas
4 months ago
Reply to  Justin Clark

All the Ponzie investors are happy wile the price is going up.

Bit coin is not money. Money is made by producing goods and services. As goods and services increase, so does wealth – and it is demarcated by money.

Bit coin is speculation. A number of ‘Whales’ (large holders of BTC from when it was $1 – $10 – $100, say) do what is called Hodling (not selling so the supply on the market is low, and so the price rises as few are put up for sale.

This increase in price is not value. Nothing was produced.

Take Ford – they make more trucks, do it better, sell more, make more money, their stock grows in value – they are ‘Good Money’, they produced goods, and so produced wealth.

BTC, the Whales hype it (Michael Saylor) wile Hodling – the speculative price rises – it goes up because they are holding it back – but it made no goods and services, it rose on speculation, it is ‘Bad Money’ – look up Gresham’s Law…. Bad money drives out Good money. BTC is a bad thing for any economy, it is not real, it has no value, it is a faguzi…

If the whales sell it is over…..

https://www.youtube.com/watch?v=KPD2fUcYUsM

Justin Clark
Justin Clark
4 months ago
Reply to  Galeti Tavas

Respect your viewpoint, as always.
El Salvador has bitcoin as a currency. It’s a start. If the whales sell, the price will drop, and we will buy more. Money is determined by the people and their businesses – not the government. I live in hope for this, because there is little alternative.

David Simpson
David Simpson
4 months ago

Still, had you bought a Bitcoin in 2010, I think you’d be crying all the way to the bank today. Or 2015. Or 2017. Even 2019.

David Barnett
David Barnett
4 months ago

Bitcoin bi-passes the ability of any central controller to confiscate it. Following the logic of Gresham’s law it is in the hoarding phase. Except in El Salvador, it is not yet widely used for day-to-day transactions. And very few people are wanting to trade out of bitcoin into dollars and other fiat currencies. In thin trading markets extreme volatility is to be expected.

Vijay Kant
Vijay Kant
4 months ago
Reply to  David Barnett

Given the hard limit on the number of Bitcoins, it will never ever come out of its hoarding phase. Why spend any Bitcoin today if you know that its value is going to rise next year? An economy governed by a limited number of coins will eventually come to halt as there isn’t any incentive for coin holder to invest or spend in the absence of inflation. The primary function of inflation in a fiat currency regime is to stop people from hoarding the currency and force them to spend and invest it. A little inflation is essential for an economy to function. Bitcoiners, who hate even a slight inflation, are implicitly wishing for a dead economy.

Last edited 4 months ago by Vijay Kant
David Barnett
David Barnett
4 months ago
Reply to  Vijay Kant

When people are no longer willing to accept fiat currency, They will start trading other things, including bitcoin. This kind of thing has happened before in monetary history.
Inflation merely distorts the price signals leading to inappropriate allocation of resources. It enriches those closest to the money spigot at the expense of everyone else.
In the 1970’s the expectation of inflation caused people to discount it by building it into contracts (and demanding compensating interest. In principle, that could transform away the inflation, but why suffer that complication, and why gift unearned profits to those closest to the money spigot?
The 19th century was one of expansionary deflation. In money terms, wages hardly changed, but what those wages cold buy improved substantially.
Don’t believe the inflationist propaganda. It is self-serving bunk.

Roger Inkpen
Roger Inkpen
4 months ago
Reply to  Vijay Kant

Classic tulip fever. There’s a finite supply and demand is high, so the price keeps going up. What can possibly go wrong?

Sean Meister
Sean Meister
4 months ago
Reply to  David Barnett

Well said, despite everything BTC is still on a collision course with a supply shock. Hodlers have a decade-long timeframe for a reason.

R Wright
R Wright
4 months ago

Bitcoin’s only real value is forcing PC gamers unable to buy a GPU outside.

Jason Highley
Jason Highley
4 months ago

The only on-ramps and off-ramps are fiat. And Bitcoin should never be measured in USD, it’s traded in USDT, which – years after Tether got off the ground – has never had a successful audit and continues to kick such an audit down the road in hopes of buying more time for their fraud/scam. The idea that these digital tokens – glued so inelegantly to the blockchain (and there is real promise in distributed hyper-ledger) – we ever going to amount to currency, a stable currency! is laughable. Canada has proven that it’s a pipe dream.
In retrospect, the perfect way to find out just how much Tether IS actually backed would be for a good old fashioned run on the exchanges. I was really hoping the fallout from Canada would prompt this. Ah, well. Geopolitical events should offer up several more opportunities this year.

Sean Meister
Sean Meister
4 months ago

Feel free to buy Gold now and let’s compare their value in 10 years.

Giles Chance
Giles Chance
4 months ago

Bitcoin is simply an expression of massive over-issuance of currency. Watch it shrivel, as QE is terminated and as rates rise.

Last edited 4 months ago by Giles Chance
Philip Stott
Philip Stott
4 months ago

The only utility of BTC that I can see is for buying things on the black market, and that’s not a good thing IMHO!

Justin Clark
Justin Clark
4 months ago
Reply to  Philip Stott

you should see what dollars can buy too…