Not So Safe Haven? Signs Suggest Bitcoin Might Still Be a Risk Asset

Bitcoin and the equities markets both took a tumble this week, leaving many to wonder if BTC is more safe haven or risk asset.

AccessTimeIconOct 14, 2018 at 11:59 a.m. UTC
Updated Sep 13, 2021 at 8:29 a.m. UTC
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Volatile price swings and plummeting valuations have been a reality for bitcoin investors of late, but those who own traditional equities haven't been immune either.

In fact, bitcoin and the S&P have correlated on and off for almost a year, each taking turns as the leading indicator. Bitcoin, the cryptocurrency advertised as digital gold due to its difficult means of production and limited supply, is expected by some to act as a "safe haven asset," one that rises or remains stable in times of economic turmoil (just as its metal companion traditionally has).

To date, though, rarely has that been the case.

Since Oct. 10, both bitcoin and equities markets have taken a notable plunge, and interestingly enough, to around the same degree. The S&P 500, the benchmark for equities worldwide, at its lowest point of the day of $2,710 market a 5.69 percent loss from the opening price of the day prior.

Similarly, bitcoin's low yesterday of $6,205 marks a similar 6.7 percent depreciation from the opening prices two days ago, according to data from Binance.

The respective performances suggest bitcoin is behaving like a risk asset rather than a safe haven alternative – a claim backed up by their technical charts.

A look at the charts


The daily chart comparison between the S&P 500 Index (SPX) and BTC shows a similar correlation in price action and direction, with a notable dip in both markets in September and October. 

It has often been the case that as bitcoin gains in value, so too does the SPX, and vice versa, providing an indication on the status of investor sentiment worldwide.

Observing the end of September for bitcoin, we see how prices peaked and sharply fell as the month of October rolled around, the SPX also retraced around the same time.

The first indications for bitcoin's most recent breakdown appeared on the SPX on Oct. 4-5, demonstrated by the peak in price and a bearish 3-candlestick breakdown that triggered a sharp sell-off. Bitcoin followed suit a day later after printing a similar bearish candlestick on both charts.

So, for now, it seems as though the SPX is providing signals for the bitcoin market a day or so in advance.

Bitcoin as a risk asset

Risky assets are the ones that have a significant degree of price volatility and do not offer fixed returns. Further, the prices of these assets tend to rise when the domestic and global economy is growing.

For instance, stock markets do not offer a guaranteed return and usually rally when the economy is doing well and vice versa.

On similar lines, emerging market currencies, base metals and oil are risky assets, which closely follow the action in the major stock exchanges across the globe.

BTC does share some of the properties of the risky assets. For instance, there are no fixed returns in the bitcoin market and historically, it's been highly volatile. More importantly, it is closely following the stock markets. So, it is safe to conclude that BTC is currently being treated as risk assets by some investors.

The leading cryptocurrency will likely start behaving like a classic safe haven asset after its adoption rates have increased significantly.

Disclosure: The authors hold USDT, BTC, AST, REQ, OMG, FUEL, 1st and AMP at the time of writing.

Newspaper image via Shutterstock; charts via TradingView


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