Why Bitcoin falls short as a safe haven in geopolitical turmoil
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How is Bitcoin compared to gold during geopolitical crises?
How digital gold acts during a geopolitical crisis. From American Public Media, this is Marketplace Tech. I'm Stephanie Hughes.
Pretty much since its inception, the cryptocurrency Bitcoin has been compared to gold. There's only so much of it. Its value isn't tied to any fiat currency. But gold is a traditional safe haven asset, while Bitcoin isn't necessarily. Gold surged in value when news first spread that the U.S. had attacked Iran. Bitcoin didn't see the same immediate flight to safety. I asked Gil Luria, head of tech research at D.A. Davidson, why this is.
It's been volatile throughout its life. And over the years, it's also been associated with bad behavior, with shady behavior. People have gone to jail. People have used it for ransom. And so it has connotations that people don't associate with safety. And that's cumulative over the years. And we're probably a little bit in that phase where people are disillusioned with Bitcoin and crypto, where gold has actually had a relatively steady ascent. It's accelerated at times, but it doesn't have day-to-day collapses and moves like Bitcoin has had really every day for the last 16 or 17 years.
Bitcoin is an alternative investment. You know, it exists outside the traditional financial markets. What does that mean for how attractive it might be during times of geopolitical crisis?
So it is attractive for that very reason. There's a fixed amount of Bitcoin. The more people get excited about it, the more they buy it, the higher the price goes. And that's really the only driver of Bitcoin. Bitcoin has a lot of uses. One is the one we're talking about. It's an asset that moves differently than other assets. Another one is people love to trade it. It's tradable 24-7 on any connected device, anywhere in the world. And there's so much liquidity, you can always find somebody who will be on the other side of the trade. There's other applications in the technology realm where people think that it can provide better financial services than the existing infrastructure, like money transfer, cross-border payments.
etc.
Why don't investors see Bitcoin as a safe haven asset?
So the adoption of Bitcoin is something that's been happening for the last 16 years, and it will continue to happen and completely separate from the rest of the economy.
What do you think will happen with Bitcoin if the war continues for weeks, months, maybe even longer?
There's a lot of factors here, right? So one of them that we haven't mentioned yet is that Bitcoin is quite popular in Iran. Because the instability of that system, there's a lot of people that mine Bitcoin and have Bitcoin inside Iran. If wealth starts escaping from Iran, that could create movements, more demand to move Bitcoin, more demand to buy and sell Bitcoin. If... The ward gets dragged out to a point where oil rises very much and the economy stagnates. Again, people run away from their main assets, stocks, bonds, real estate, and they may run towards more assets like gold and Bitcoin. And if there's more inflation in the U.S. and that deflates the U.S.
What are the historical behaviors associated with Bitcoin?
dollar, then there may be movement towards assets like Bitcoin or gold that can protect you from that.
We'll be right back.
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You're listening to Marketplace Tech. I'm Stephanie Hughes. We're back with Gil Luria, head of technology research at DA Davidson. At Marketplace, we've had some conversations in the past few days about how war is inflationary. And you see it reported that some traders are investing in Bitcoin now as a hedge against inflation.
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