Bitcoin emerges as safe haven amidst stock market crisis

173

21st March 2023 – (New York) Bitcoin is suddenly being seen as a safe haven asset as the traditional world of stocks and bonds are facing a crisis. Amidst the banking meltdown that is driving markets into a recession, the famously volatile cryptocurrency is proving to be resilient. This month, Bitcoin has gained 21%, while the S&P 500 has lost 1.4%, and gold has gained 8%.

According to Stéphane Ouellette, CEO at digital asset investment platform FRNT Financial, if an environment were to be described with successive bank runs and central banks attempting to fight inflation with fast rate increases, this is the perfect scenario for owning bitcoin.

For now, Bitcoin has severed its ties with stocks and bonds and has instead tagged onto a rally in gold. This fulfils at least one part of creator Satoshi Nakamoto’s vision that Bitcoin can serve as a refuge for suffering investors. Its 30-day correlation with the S&P 500 has slid to negative 0.12 over the past week, where a measure of 1 indicates that the two assets are moving in lockstep.

However, one should not get carried away. Bitcoin remains highly volatile. According to Ouellette, the bearish argument would be that these dynamics are temporary, and ultimately this rally is not going to sustain.

Nonetheless, Bitcoin is resurgent. It now commands almost 43% of the total crypto market, its highest share since last June, according to CoinMarketCap data. The total cryptocurrency market’s capitalization has also jumped 23% to $1.1 billion since March 10.

Henry Elder, head of decentralized finance (DeFi) at digital asset investment manager Wave Digital Assets, believes that this resurgence is due to a return to Bitcoin’s core ethos. That of a financial asset independent from the opacity and meddling of the centralized financial system.

The mainstream bank crisis has also fuelled some interest in DeFi. The total value of tokens linked to such platforms has risen to $49 billion from $43 billion over the past week, according to DappRadar.

Not all areas of the digital world have been immune to the banking fallout, though. The no. 2 stablecoin Circle USD or USDC lost its 1:1 peg to the dollar after disclosing its reserves were parked at the shuttered Silicon Valley Bank. As worries spread over USDC’s ability to maintain its peg, its market cap slid to $36.8 billion last Friday from $43.8 billion a week earlier, even as leading stablecoin Tether gained around $4 billion.

Market participants said some USDC withdrawals were likely reinvested in bitcoin as well, helping fuel the rally. However, Ed Hindi, Chief Investment Officer at Tyr Capital in Geneva, cautioned that it’s too soon to say that bitcoin has proven the narrative that it’s an alternative in a banking crisis. But he added that the rally we are currently witnessing in bitcoin will be looked back at as the point in time where its main property as a decentralized non-sovereign asset was stress-tested.