Bitcoin’s categorization as a safe haven still remains a question. Over the last month when there was some political tension between the United States and Iraq, Bitcoin reacted in a similar fashion as gold and oil. Volatility in Bitcoin can’t be measured since it does not yet have a generally accepted index since cryptocurrency as an asset class is still in its nascent stages.
According to a recent report published by market research firm Arcane Research, the 7-day average daily trading volume for Bitcoin has already surged 126% in a week, with almost $1.5 billion traded on January 8 itself. BTC trading volumes have doubled in a week’s time. The report reads:
“The market recovered sharply from the disappointing $192 million that were traded on Jan. 1.”
A safe Haven?
The report further noted Bitcoin’s correlation, which has always had tenuous links to gold, has reached a three year high following US-China trade war tensions, and the latest Iran flare-up which resulted in the death of Iranian military commander Qasem Soleimani.
Bitcoin’s price jumped 5 percent on 3rd January following the airstrike. The escalating tension between the US and Iran has led many to believe that the fears of an upcoming war tend to make investors nervous about the future economic growth of the nation.
The authors of the report admit that “it is way too early to draw any firm conclusion,” but duly noted that these events have made a positive effect on the prices of Bitcoin and Gold. Many suggest that Bitcoin could be a global hedge in the face of a potential global economic recession, especially when its price started rising on negative news for the world economy. The paper reads:
“The ‘safe haven’ narrative for Bitcoin is starting to become true. However, this short-term price action could also just be a spurious correlation and a long-term evaluation must be taken into consideration.”
The report also mentioned that the Crypto Fear & Greed Index shown on Alternative.me has been on the rise since mid-December and on January 6 it touched neutral levels for the first time since October. The indicator derives its reading from volatility, market momentum and volume, social media, surveys, Bitcoin crypto market dominance, and Google trends.
Fresh money flowing in
Besides this, Bitcoin is also starting to draw in institutional investment as more platforms emerge with regulated custodial services. The past few months saw the institutional infrastructure supporting BTC strengthen, with the help of companies like Bakkt, CME, and other platforms that provide regulated investment options for BTC.
According to JPMorgan managing director Nikolaos Panigirtzoglou, the activity of the CME bitcoin futures contract has increased in recent time’s indicating that the demand for BTC and new options contract for the cryptocurrency is high.
Another reason that many analysts believe is the driving factor of the recent BTC price rally is the upcoming Bitcoin reward halving.
As the circulating supply of Bitcoin will cut by 50 percent, it seems natural that the reduced supply would add to the scarcity of the asset and its value would be going up. This is also predicated on history as the last two Bitcoin reward halvings have seen exponential growth in the price following these events.
This is also a controversial topic as a recent from blockchain research firm Messari has stated that if the Bitcoin halving is to lead to renewed price action it would have to cause an increase in demand that is not necessarily guaranteed after the supply is cut as recent events have proven.