Bitcoin is often described as a risky gamble. He has just been born. It has been around for about a decade. It is poorly understood by mass markets. It's an experiment, so it may still fail. All these claims are true.
Bitcoin appears to be suspended between disillusionment and enlightenment. This means that most people continue to view this cryptocurrency as a crazy business. This perception causes investors to often insert bitcoins among risky assets.
It is associated with the same category of high growth rate securities, high yield debt, high-beta exchange traded funds, venture capital investments and emerging markets.
The dynamics of risk
Markets basically have two ways: risk-on and risk-off. In the risk-on phase, when markets are confident and there is a high movement of goods, risky assets tend to outperform safe havens.
When markets are at risk-off, safe haven assets like gold, treasury bills and cash rates are better and often the only investments that grow as investors sell their riskier assets to buy something safe. .
Whether a financial product is a risky asset or a safe haven depends on the number of properties, in some cases also on the fundamentals of the asset. The share price is a reflection of the company's expected future cash flows, which in turn depend on dynamics such as customer demand.
Gold, with its relatively fixed supply and constant demand from entities such as central banks, is resistant to market cycles and downward shocks. In all cases, that what matters most in understanding the correlations and behavior of the activities is the perception of the market.
Is the perception around Bitcoin rational?
The perception around bitcoin lacks the most important properties of this cryptocurrency which represents, in many respects, the safest safe haven asset. It can be self-guarded, so even when the systems of trust and the rule of law are broken, it can be maintained.
It is open and borderless, with relatively liquid markets in all countries of the world. It is censorship resistant, which means that no government or institution can prevent bitcoin investments or transactions. Bitcoin has a fixed offer, very similar to gold.
It is digital, which makes it practical to be accumulated, held and transported. However, the behavior of the price of bitcoin in the past two weeks, when concerns about a global pandemic have increased, is more than invest high risk than a safe haven.
Are the markets wrong? Should bitcoin be more correlated with gold than with Apple stocks? Could be. But as John Maynard Keynes said, "Markets can stay irrational longer than you can get solvent." The road to understanding and considering bitcoin as a safe haven is long, and requires profound investment in education.
