Could Bitcoin prove a wartime safe haven?
This past summer and autumn (2019) the economic news was awash with stories threatening a Trump recession on the horizon. The so-called economic experts of the world could not accept the fact that the U.S. economy could continue its strong run and, as a result, collectively decided that the only direction it could take was recessionary. That gave rise to a discussion in the crypto community over whether or not Bitcoin would act as a safe haven in an economic downturn.
With the U.S. economy still on fire, we might not know the answer to that question anytime soon. But now there is a new question: could Bitcoin prove a wartime safe haven? Such discussions are now being had in the aftermath of all the goings-on in Iran.
As you know, the U.S. put new and heavy economic sanctions on Iran after backing out of the nuclear deal in 2019. Then the Trump administration declared war after droning one of the country's top generals. That was then followed by the downing of a Ukrainian airliner as Iran attempted to retaliate to potential cruise missiles. It's also widely speculated that the U.S. hacked the aircraft's transponder turning it off so that it would appear to be a missile. They also hacked and jammed the Iranian missile site 10 minutes earlier. Signal jamming was reported by the Iranians.
Who can you believe these days? The U.S. is known for creating false flags around the world so this would not a surprise. In any case, the normal Iranian folk who go to work everyday and try to live in peace and raise their families are not happy. Iran is brimming over with protests, surprisingly not against the U.S., but against the Iranian government source.
Turmoil seems to be the word of the day in Iran. Curiously, the financial world has responded in ways that are more typical of wartime than peacetime. Oil prices have fluctuated, gold has been on a tear, and investors are talking about wartime safe havens. Enter Bitcoin.
Flirting with another bull
Bitcoin opened 2020 at just under $7,200. It had briefly flirted with $6,500 in mid-December 2019, after a slow and steady tumble from a peak of nearly $13,000 over the summer. By the end of December, some analysts were predicting Bitcoin would fall to $5,000 or lower in the coming month or two before rebounding in advance of halving later in 2020.
There was no legitimate reason to object to such predictions. It is a given among cryptocurrency experts that halving will do very good things for Bitcoin's price. Furthermore, there did not seem to be any viable reason to believe that Bitcoin would surge above $8,000 and remain there.
Bitcoin still is just over the $8,000 mark, but now everyone is talking Bulls. In preparation for this post, a ton of research into all the latest crypto news was undertaken. On site after site we found a common thread: one expert after another saying that Bitcoin is on the verge of breaking out into a huge bull market. So what has changed? Iran.
Little else is happening on the geopolitical stage right now, with the possible exception of China's central bank digital currency (CDBC) having made significant strides in its initial testing phase. Yet there is not enough progress there to warrant so much Bitcoin action. As such, we are back to Iran.
Assets on the rise
Traditional securities tend to react in specific ways under the threat of war. Stocks fall, bonds solidify, and commodities rise. Investors start pulling out of those opportunities they believe are too susceptible to wartime economic damage. Instead, they put money into what they believe are war-proof assets.
According to a CCN analysis published on January 9, traditional safe haven assets like gold and silver started their expected climb when events in Iran began unfolding source. But so did Bitcoin. Amazingly, Bitcoin outpaced all of those other assets.
The five-day price of gold was up 6% early in the day on January 8. Bitcoin was up 16%. Moreover, the number of online searches for the term 'Bitcoin Iran' were up more than 4,400% during the week of January 1 through 8. One could make the case that the meteoric rise in searches is more the result of a very specific search term rather than anything else, but it's still undeniable that people are researching Bitcoin because of what is happening Iran.
One last thing to notice in this regard is history. Another CCN report reminded readers how Bitcoin jumped from $5,000 to nearly $14,000 when U.S. President Donald Trump first announced his trade war with China source. Back then, it was believed that Bitcoin could act as an economic safe haven in the event of a new recession.
We are no longer talking recession at this point. But we are talking war, and a war in the Middle East could have a significant effect on global economics. As such, it is not unreasonable to associate the reaction to Bitcoin at the threat of a trade war to how people are viewing it now with the possible threat of military conflict.
The safe haven principal
At this point it might be helpful to discuss what a safe haven is in financial markets. A safe haven is essentially an investment that is expected to at least hold its value during volatile periods. The best safe havens might even increase in value. Investors turn to safe havens whenever they feel there are circumstances that could otherwise expose them to significant losses.
Often times such circumstances are economic in nature. For example, the Great Recession led a lot of investors to pull out of the stock market and put their money into bonds instead. All but the most savvy investors were wary of real estate as well during that turbulent time. There were just too many losses associated with stocks and property to make investing in them worthwhile.
Other times circumstances have to do with global politics. Tension in the Middle East always makes investors skittish, as evidenced by how the stock market responds. Whenever things get a bit dicey in that part of the world, stocks plummet and commodities rise. When things settle down, investors go back to the stock market.
The whole point here is to move one's assets around in order to prevent significant losses. If one market looks like it is going to get hit, investors will pull out and put their money into something they consider safer. This is how safe havens work. The thing about safe havens though, is that they are intended to be long-term. Investors turn to safe havens when they believe that a particular negative circumstance is going to linger.
Iran could prove a good test
The long-term nature of safe havens suggests that Iran could prove to be a very good test of Bitcoin's potential as a wartime safe haven. Iranian leaders seem to have decided to tone down their threats against the U.S. out of fear that they cannot possibly win a war fighting it alone. However, that hardly means a de-escalation of Middle East tensions.
The fact that Iran's own citizens are protesting the government and calling for the deaths of their leaders suggests that things are going to get worse before they get better source. If it was up to Israel and the U.S., the country would be on the verge of becoming another Syria and Iraq. If that happens, expect the world's major players to pick sides with Russia and China on the Iranian side.
Any events trending in that direction will cause fear in the minds of investors who see the threat of war as imminent. That is when they will begin to move assets into safe havens. If they start moving large volumes of resources into Bitcoin, they might prove that the world's number one cryptocurrency is also an effective wartime safe haven.
A decade of evolution
As the world waits to see what happens in Iran, looking back on the history of Bitcoin tells us a lot. Bitcoin has certainly evolved quite a bit since Satoshi Nakamoto launched it more than a decade ago. What began as a hobby project to create a digital monetary system has become something quite a bit different.
Back then, Bitcoin was nothing more than a digital payment platform designed to work around fiat and traditional payment models. It was designed to allow people to move money outside of the accepted financial system, for whatever reason they saw fit. It was thought by many in the nascent crypto community that Bitcoin would become a serious competitor to fiat.
That never materialized. However, large numbers of investors - with money to spend - started putting money into Bitcoin as a store of value. Their investments paid off to the tune of nearly $20,000 per coin in 2017. Thus, Bitcoin's potential as an actual investment was born.
Bitcoin still isn't the day-to-day monetary system its inventor originally imagined. It probably never will be. Yet it has shown itself rather resilient as an investment. Volatile as it may be, Bitcoin and its alt coin competitors have shown that you can make a viable investment out of anything as long as people agree to a certain value.
Bitcoin is worth so much because those who trade it agree to its value. If those same people agree to treat Bitcoin as a safe haven during economic or geopolitical crises, the cryptocurrency will prove itself to have a form of utility no one even imagined a decade ago. Of course, all of this remains to be seen. Keep an eye on Iran and how Bitcoin responds to what is happening there.