Is Bitcoin An Investing Safe Haven?
- October 10, 2017
- by Chris
Bitcoin investment has been a very hot topic in 2017, and it’s easy to understand why. The leading digital currency that some dismissed as a joke or gimmick just a few years ago has surged to unprecedented highs. Those who invested early on can now sell their Bitcoin for impressive gains, and some are even buying in now in the hopes that the 2017 surge is only the beginning. But is Bitcoin, as some have suggested, a new “safe haven” for investors?
Before we answer that question it’s important to define it. The term “safe haven” in investing does not mean that an asset is fundamentally safe. There is no such thing as such an asset. Every investment carries risk, and neither Bitcoin nor anything else has been labeled a “safe haven” is an exception. What this term refers to is a commodity that is capable of maintaining strength when conventional financial markets fall. The old standard is gold, which has long attracted investors in times of economic hardship. When a major event or disaster causes a given market to collapse, gold is to some extent immune, because it doesn’t belong to that or any other market. It’s its own commodity. Thus, during such periods of collapse, some investors will pull their money from stocks and invest it in gold in order to save or even increase its value. This is what some are suggesting Bitcoin could be used for.
Now, to understand whether or not that’s a wise line of reasoning, you have to have a firm understanding of Bitcoin itself. This is a new form of currency that exists exclusively in the digital space, and is sometimes referred to as a “cryptocurrency.” As such, like gold, it is free from any particular financial system, bank, or government. Bitcoin simply operates on the internet and through its digital blockchain, a sort of technological leger that automatically records all transactions. Fundamentally speaking, Bitcoin actually should make sense as a safe haven in that it checks a lot of the boxes gold does. It ought to be able to maintain its ordinary course even if regular markets crash.
That said, however, full consideration of the question at hand requires digging a little bit deeper than the fundamental concept. At least one take on the matter has called the idea of bitcoin becoming the preferred safe haven (as opposed to gold) almost laughable. That article argued that Bitcoin will never have the same lasting value as gold for two reasons: its finite nature is not guaranteed (protocols could be changed to allow for more Bitcoin mining than originally intended), and it has very few real world uses. That doesn’t change the fundamentals mentioned in the previous paragraph, but it does indicate that Bitcoin’s value could be more fleeting. It could well be that we’re just in a short era of interest in cryptocurrency that will ultimately fade away – and this idea may be supported in just how up-and-down the cryptocurrency market has been, even
if it’s trended upward overall.
Even so, this is all worth keeping in mind if you’re interested in new ways to save and invest. It’s always a little bit dangerous to think of any commodity as a safe haven, but it’s also exciting to have a brand new asset on the block to consider.