NEW SAFE HAVEN ASSET
A safe haven investment diversifies an investor’s portfolio and is beneficial in times of market volatility and during such events in the market are unavoidable, some investors look to buy safe haven assets that are uncorrelated or negatively correlated to the general market during times of distress. While most assets are falling in value, safe havens either retain or increase in value.
In other words, investors have to protect their funds, assets by placing them on safe places like 10-year Treasury bills, gold, Swiss franc, Japanese Yen.
Today, we have another safe haven asset, called Bitcoin. Bitcoin was created during the Great Recession, in 2008, to fight against centralized financial system and the reason of financial crises - inflation. The biggest 2 economic crises in history - the Great Depression and the Great Recession have started from the surplus of the cash in circulation.
In both cases, Federal Reserve System was printing and distributing as much money as they wanted. For banks, this made much easier to give credits, and as there was an increased supply of credit, they tried to offer more favorable conditions than their competitors in order to get more clients.
As a result, in 1929 the Wall Street crashed, as lots of people were taking credits in order to buy different stocks, which resulted in price decreases in the stock market. In 2008, the mortgage market crashed, as people started to use mortgages in vast amounts.
With Bitcoin, to avoid inflation and devaluation of money, the creator of it - Satoshi Nakamoto defined that there will be mined only 21 000 000 Bitcoins. This means, Bitcoin cannot lead to inflation, on the contrary, it is created to avoid the inflation and fight against possible financial crises. So that, it is considered as a hedge against crisis, like gold.
Today, the market is experiencing the birth of a new safe haven asset that is called “Bitcoin”. You may say, bitcoin cannot be a safe haven asset because the correlation between stocks and bitcoin is not any close to -50%. Thus, in that case, considering Bitcoin as a safe haven asset cannot be accepted. However, things are going to change soon, as bitcoin is a digital asset, which is already accepted and legalized by several countries, and one of them is G7 country - Japan.