Bitcoin has frequently been regarded as a risky asset, with its price movements heavily influenced by market sentiment. Bitcoin has traditionally followed a risk-on mentality, with its price rising when there is more risk in the market. However, something unusual has occurred in the Bitcoin market in the last month, as it has responded positively to risk-off behaviour.
This is due to the ongoing banking crisis, which has prompted many investors to seek alternative investment opportunities. Investors are turning to Bitcoin as a safe haven asset as traditional financial institutions struggle to deal with the economic fallout from the pandemic. This is reflected in Bitcoin's recent price movements, which have been more closely aligned with traditional safe-haven assets like gold.
At the time of writing, Bitcoin is trading just below the bull market's lows, a level that investors are keeping a close eye on. Even when Bitcoin surged up to 200 percent from its lows in 2018 and 2019, it still fell and retested the 3,500-ish low. It remains to be seen whether the current bank run will result in a similar dip, but one thing is certain: the current level of Bitcoin is a key factor in determining its future price movements.
Despite the price uncertainty surrounding Bitcoin, the fundamental case for crypto and gold is compelling, particularly during a banking crisis. After all, Bitcoin was created to address the shortcomings of traditional financial systems. Because of its decentralised nature and limited supply, it is an appealing investment option for those looking for a hedge against inflation and currency depreciation.
However, fear and emotion can override rational thinking in the short term, as we saw during the March 2020 panic, when even gold was selling off. This emphasises the importance of investing in Bitcoin or any other asset over the long term. While market sentiment can influence short-term price movements, the underlying value of the asset ultimately determines its long-term success.
Finally, the recent price movements of Bitcoin have called into question traditional notions of it being a risk-on asset. As the banking crisis worsens, Bitcoin's reaction to risk-aversion has been positive, with many investors seeing it as a safe haven asset. While Bitcoin's short-term prospects are uncertain, its long-term potential as a hedge against inflation and currency depreciation is undeniable. As with any investment, a long-term perspective is essential for realising Bitcoin's full potential.
Source:
Stansberry Research, 5 April 2023, "As Gold Price Soars, Expert Says He Would Be Scared 'Out of His Mind' if Fed Did This",