Crypto as safe haven assets: Are cryptocurrencies your port in a storm?

In times of uncertainty, investors have historically turned to safe haven assets like gold or the Swiss franc as a hedge against macroeconomic turmoil. Today, many are adding cryptocurrencies to this list.

Last June we took a look at the case for Bitcoin as a safe haven asset. As we wrote then, in times of economic or geopolitical turmoil, investors tend to hedge against macroeconomic uncertainty with durable assets that have value and can be expected to hold that value over the long term. Gold is the classic safe haven asset, but there are other assets, like the Swiss franc or real estate, that also often make this list.

Since we wrote that piece last June, we think the case for cryptocurrencies like Bitcoin as safe haven assets suitable as a macro hedge has only strengthened. Here are some reasons why:

  • Major steps towards regulatory clarity. While many regulators around the world, most notably the EU with its MiCA regulation, have provided clarity around cryptocurrencies and digital assets, the situation in the US has historically been more uncertain. With the approval of spot Bitcoin ETFs by the SEC this January, a major source of uncertainty was removed. The decision by one of the most important and largest jurisdictions in the world not only provided regulatory clarity on Bitcoin, but has opened the way for similar decisions on other cryptocurrencies, like ether. While these decisions are still outstanding, and while there is still a long way to go to achieve regulatory clarity globally, these recent decisions could mark a turning point, making it easier for all investors to access this asset class.
  • Institutional adoption and mainstreaming. The approval of the Bitcoin spot ETFs also marked the entry of major institutions like BlackRock and Fidelity into the crypto space. This was a huge step forward in what has been a slow and steady march of institutional interest in cryptocurrencies. This points to an ongoing mainstreaming of the asset class, making it more suitable as a safe haven asset class for a broad swathe of investors.
  • Cryptocurrencies and geopolitical uncertainty. In June we argued that Bitcoin could become a safe haven asset in times of economic or political uncertainty because its value does not depend on government policy or the ups and downs of geopolitical fortunes or the movement of financial markets. As of now, and despite the price drops during last year’s crypto winter, events seem to have borne this out. Bitcoin’s correlation with equity markets significantly decreased last year and its performance outstripped many classic safe haven assets like gold or US government bonds. Interestingly, in 2023 Bitcoin’s volatility was the lowest it has been in over a decade.
  • Investors increasingly believe in crypto as a macro hedge. Our Future Finance report, which surveyed professional and institutional investors in the crypto market, found that over 40% of investors see crypto as a macro hedge. Recently, Reuters reported that, despite the fact that it is banned, Chinese investors are rushing into Bitcoin as a hedge against the ailing Chinese economy and stock markets.
  • Slow but steady decline of the US dollar. While the dollar remains the world’s reserve currency, many believe its dominance is on the wane, albeit slowly. Its share in central bank reserves has dropped over 10% since 1999, and many countries are calling for trade to be carried out in currencies other than the dollar. Renowned investors like Jim Rogers have echoed this sentiment, pointing out that no currency remains dominant forever. Cryptocurrencies could play a part as countries look to diversify their currency holdings and use alternative currencies for trade.

None of this is to say that cryptocurrencies are the perfect hedge against macro uncertainty, nor that they do not come with risks and uncertainties of their own. But as we’ve seen, there are indications that they do offer investors an alternative. As such, they are definitely worth considering as part of an overall macro hedging strategy.

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