Bitcoin, the world’s largest cryptocurrency by market capitalization, is showing signs of regaining its status as a safe-haven asset in the midst of recent banking crises. In fact, it has been on track for its third consecutive month of positive gains as investors continue to see it as a hedge against the recent bank failures.
What’s interesting is that it is no longer trading in lockstep with the S&P 500, and data from Coin Metrics suggests the correlation between Bitcoin and equities is now the weakest since September 2021. This makes sense, of course, considering its valuation is not coupled with earnings growth as in the case of equities.
According to Alex Thorn of Galaxy Digital, “The correlation data shows that, at least recently, Bitcoin has indeed performed more like a safe-haven asset than a risk asset.” Bitcoin is currently up about 70% for the year.
Moreover, the banking crisis has helped Bitcoin reestablished the correlation it once shared with gold, which signals that it is now regaining the status as a “risk-off” asset. Thorn adds, “Given the nature of current crisis – in which fractional reserve banking system’s core limitations are tested – Bitcoin’s fundamental characteristics genuinely distinguish and offer a safe port in a storm.”
It is worth noting that Bitcoin had a difficult 2022, partly due to aggressive rate hikes. However, as we near the end of that cycle, it is likely that Bitcoin will have a clearer path ahead for upside. Last week, Fed Chair Powell signalled only one more rate hike this year.
In conclusion, Bitcoin is showing promising signs of becoming a safe-haven asset again, thanks to its fundamental characteristics and its ability to provide a hedge against financial crises. As investors become more aware of its potential, it may help Bitcoin solidify its status as a reliable investment option for the future.