Economic and political instability has a strong adverse impact on the stock and commodity markets as well as on the national currency. During periods of uncertainty or slowdown, investors turn to what they consider as “safe haven” investments, or investments that do not exhibit a strong correlation to economic and political conditions.
Traditionally gold has been considered a safe haven investment. More recently, Bitcoin has assumed this role. Bitcoin is similar to gold, since both have scarcity value, both are highly divisible and neither can be counterfeited. On the other hand, Bitcoin has certain advantages over the yellow metal. It can be transferred with greater ease and has high utility value, since more and more companies are accepting Bitcoin as a legitimate mode of payment. Moreover, Bitcoin can be traded round the clock and, unlike physical gold, it can be stored with safety in a digital format, albeit encrypted.
In fact, Bitcoin has much higher scarcity value than gold and could, therefore, be considered as a better store of value. No wonder then that Bitcoin price surpassed gold in August 2017. Given the political and economic uncertainties worldwide, both assets played their role as safe havens; however, they trended differently. While gold inched up, Bitcoin surged, doubling in value in less than five months.
Bitcoin may not replace gold, but could be an important safe haven choice. The price of both these safe havens may become increasingly intertwined.