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Bitcoin is often regarded, whether deserved or not, as a “safe haven asset”—a hedge against economic uncertainty. That narrative is being put to the test now as the world faces an unprecedented financial crisis as a result of the coronavirus pandemic.
At the moment, proponents of this narrative are being bolstered: the price of Bitcoin is on the rise, heading toward $12,000 for the first time in two months, just as stocks are plummeting following statements of concern from the International Monetary Fund.
Late last week, the IMF’s managing director, Kristalina Georgieva, made some polemic comments regarding the need for world economies to increase their debts while calling for a new “Brenton Woods moment.”
“We expect 2021 debt levels to go up significantly—to around 125 percent of GDP in advanced economies, 65 percent of GDP in emerging markets; and 50 percent of GDP in low-income countries,” she said in a speech.
What followed was a bullish weekend for Bitcoin, while traditional markets panicked.
On Friday, Bitcoin actually dropped from $11,500 to lows near $11,100. But it has since recovered and has been heading upwards for the last three days. At the moment, Bitcoin is above $11,700 and heading toward $12,000 for the first time since mid-August.
According to the IMF’s Georgieva, the need for a new "Bretton Woods moment" is based on the idea that governments around the world must develop solutions to the global chaos caused by the coronavirus pandemic. The economic losses caused by this crisis are arguably more significant than those of the 2008 financial crisis, which coincidentally resulted in Bitcoin's birth.
To deal with the effects of a stagnant economy, the world's governments have resorted to printing money like there’s no tomorrow. In the US, the Federal Reserve said it could print money to infinity, and while there seems to be a more open stance toward a possible digitalization of the economy, there is no sign that the Fed plans to change its policy of encouraging more debt and generating greater inflation.
The stock market evidently didn’t like this kind of talk. Today, the S&P 500 and the Dow Jones each dropped by around 1%. Meanwhile, gold is up again and now priced at over $1,900 per ounce, and silver had a similar performance, going from $24.10 to almost $25 per ounce. Looking for alternative stores of value seems to be the common mindset right now.
Bitcoin’s scarcity is a plush for those who look to the asset as a store of value. And while there is plenty of historical data to suggest that Bitcoin is an uncorrelated asset—and it would do what it does no matter how other markets behave—the Bitcoin safe haven narrative in times of crisis is alive and well right now.
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.