With Bitcoin’s stellar recent performance, the debate as to whether or not it’s a viable safe-haven asset has raged on. A recent, massive crash in value, along with macroeconomic conditions has caused some to wonder if Bitcoin is ultimately doomed. This decline happens even as other typical safe-haven investments, like gold, are booming. In response, doubt is increasing about Bitcoin’s ability to lay claim to the title of “digital gold.” At the same time, increased political upheaval within the Federal Reserve further fuels the uncertainty surrounding the state of the cryptocurrency market.
Bitcoin's Price Decline and Market Correlation
In the aftermath of this summer’s altcoin boom, Bitcoin’s price has dropped 20% since January and 22% in the last month (from $110,000 down to $86,000). This drop matches a broader slide in conventional stocks. That should be read to mean that Bitcoin is not as much a hedge against stock market volatility, but rather mirroring that volatility.
Further analysis reveals that Bitcoin price action is highly correlated with a 108-day Global M2 offset. It is less well correlated with the shorter 10 and 11 week estimates. This is a sign that Bitcoin’s movements are being driven more by broader macroeconomic trends and global money supply dynamics.
The "Digital Gold" Myth in Question
These days, many like to refer to Bitcoin as “digital gold.” Safe haven Investors flock to it during times of economic uncertainty. Yet its recent performance has increasingly put that narrative to the test. Bitcoin’s value has recently crashed. In comparison, gold has not just maintained its value during the crisis, but is reaching all-time highs, reestablishing its long-held reputation as a safe haven asset.
The divergence between Bitcoin and gold's performance has led many to question Bitcoin's ability to maintain its safe-haven appeal. The cryptocurrency’s failure to serve as a true hedge has left investors disillusioned with the asset.
Political Uncertainty and Potential Market Shocks
The real market shock that could threaten BTC is President Donald Trump's upcoming bid for Fed Chair Jerome Powell's chairmanship. This possible shift in the relatively unchallenged leadership at the Federal Reserve may have broad implications for the entire cryptocurrency market.
"It would be a huge, huge shock," - Bilal Hafeez
Fed Chair Jerome Powell's stability-focused policies could be threatened by President Donald Trump's bid, potentially sparking a confidence crisis. Considering the state of the markets and the uncertainty surrounding the future of monetary policy, it’s just another layer of risk to an already highly volatile market.
