Is Bitcoin a Safe Haven Asset? – A Realistic Overview

bitcoin safe haven asset

Can bitcoin be a safe haven asset? This is a question that will dominate in the upcoming years and perhaps even decades. Ironically, since its inception, bitcoin has been perceived by many people as the new safe-haven asset, the alternative to gold, silver, the US dollar, and the alleged failing financial system. 

But is Bitcoin really a safe haven asset? After all, it’s not even a tangible asset, and as for now, it’s still a concept more than a useful currency. On the other hand…

First, What is a Safe Haven Asset?

So, what is a safe haven asset in definition and meaning? Well, in simple terms, a safe haven asset is any financial instrument or physical commodity that will retain or appreciate in value in times of economic uncertainty, economic recessions, or a total collapse of the financial system. Consequently, these safe-haven assets offer protection against high inflation rates, local currency devaluation, and a collapse of equities markets.

The most common and well-known safe-haven asset is gold, largely due to its role in the financial system as a store of value and its characteristics as a precious metal. Other examples include precious metals like silver, copper,  platinum, and aluminum. Treasury bonds of developed countries are another asset class known as safe-havens.

Other than that, many analysts and financial experts believe that other asset classes like grains and softs can also be considered reliable safe-haven assets. Wheat, corn, soybean, sugar are the most precious commodities in the world that will always have a demand regardless of what happens in financial markets and the global economic system.

So, Can Bitcoin Be the New Safe Haven Asset?

Obviously, that is a matter of opinion and largely depends on the way an individual perceives the financial system and the global economy. Here are my thoughts on this topic – some argue that bitcoin can not yet be considered a safe haven asset among investors and institutional investors. In other words, it has no real value in the financial system. Why? Because it’s a speculative cryptocurrency asset and it lacks the key characteristics of a safe haven asset. 

Indeed, bitcoin is not yet perceived by the majority of people as a stable asset. First, the volatility of bitcoin and the crypto space, in general, is the most crucial problem of all. A safe haven asset cannot be volatile and unpredictable like bitcoin or other cryptocurrencies. Secondly, bitcoin is not as liquid as other commodities like digital gold for example and the transaction costs are still a major problem. Lastly and most importantly, in the current situation bitcoin is still a risky asset, especially in the eyes of governments and financial institutions. 

Taking this into consideration, as a trader, I wouldn’t yet recommend treating bitcoin as a safe haven asset. Bitcoin is a new phenomenon in our modern society and its role in the global economic system is not yet clear. Further, it’s in a catch 22 situation. As the Chief Investment Officer of Asset Management said: “It may become less volatile if large investors buy it, but large investors may hesitate to buy it until it becomes less volatile”.

But, ironically, bitcoin is also the perfect solution for an economy with a collapsing currency and a regressing economy. Meaning, in some cases, it could be the perfect safe-haven asset. Or, the ideal alternative for a country with a high inflation rate, and a decreasing valuation of its national currency. That is the current case in Turkey, for example, where Bitcoin is booming due to the Lira crisis and the hyperinflation of around 50%. The same happens in Venezuela where bitcoin adoption is growing exponentially

Whether bitcoin can protect against inflation remains to be seen. True, bitcoin is not affected by interest rates or economic figures, and the only reason for its price fluctuations comes from other people’s willingness to buy and sell it. In that sense, bitcoin is a resilient asset that can be used in any local economy. 

I mean, if you lived in a country with a high inflation rate and a devaluing currency, what would you prefer – bitcoin or gold? bitcoin or soybeans? I guess bitcoin. 

What’s the Conclusion?

In my view, the discussion about whether bitcoin is a safe haven asset or not is perhaps the biggest reward for bitcoin and its founder, Satoshi Nakamoto. In the 2020 mini-crisis, bitcoin was skyrocketing, raising questions about its role in the financial system and more importantly, as being the alternative to gold as the most common safe-haven asset. However,  during the last stock market sell-out in early 2022, bitcoin had a positive correlation (for the first time) with the equity markets.

btc usdt chart

Based on this, bitcoin is currently perceived by investors as a speculative asset more than a valuable commodity. When the stock markets crash, bitcoin is expected to follow. So, even though it has the potential to replace gold and become a safe haven asset in the future, at least for now, it does not trade and acts like one. But for the ordinary citizens who need to face inflationary pressure, bitcoin is more valuable and useful than any other safe-haven asset in the entire world. 

In summary – bitcoin is just something else. It isn’t considered a safe-haven asset in the financial system and among traditional investors, but it certainly can be an alternative currency for countries with high inflation rates and a depreciating currency.

What Are the 5 Benefits of Trading Bitcoin CFDs?

Bitcoin is a unique phenomenon that has been making waves in the world in finance and in the mainstream media. By now, we can agree on one thing – whether you like Bitcoin or not, agree with the idea or not, and believe in it or not – it could be a legitimate currency in the future. There’s no way to ignore Bitcoin and the crypto market.

But despite the huge progress of Bitcoin around the world, for the average person, getting Bitcoins is not yet an easy task and involves a long and annoying process of opening an account at a crypto exchange and creating a digital wallet. One good solution for that problem – Bitcoin CFDs.

Key Points to Take Away

  • Bitcoin can be traded on the spot cryptocurrency market, via crypto exchanges, via futures on the CME, and via CFDs.
  • Presently the only possible way of trading BTC in both directions is by using CFDs
  • Trading cryptocurrency CFDs like Bitcoin allows investors to utilize a leverage ratio, and to significantly reduce the trading costs.

First, What Are Bitcoin CFDs?

So, what exactly are Bitcoin CFDs? Contract for difference (CFD) is a derivative contract between two sides to speculate the price movements of an asset without owning the underlying asset, meaning Bitcoin. In simple terms, it is very similar to making a legal bet on the price of an asset with another individual or a firm. 

Therefore, when you make a Bitcoin trade through a CFD contract, you do not actually own Bitcoins – instead, you simply speculate on Bitcoin’s price change. 

Fun Fact

It is estimated that around 20% of Bitcoins have been lost forever, according to Chainalysis. 

5 Main Benefits of Trading Bitcoin CFDs

1. The Process of Buying Bitcoin CFDs is Simple and Straightforward

First, going into some cryptocurrency exchanges and making a bitcoin purchase could be extremely confusing. The verification process, the trading dashboard layout, and the support service – if you are not a tech person, you’ll be frustrated and confused with your exchange account. 

To be honest, even experienced traders feel overwhelmed when they visit some crypto exchanges. In most cases, it looks like a jungle of prices (except maybe Coinbase). 

On the other hand, the process of opening an account and trading CFDs with a regulated broker is much easier. Moreover, the initial deposit requirement is usually very low, starting from $100-$500. 

2. High Leverage Ratio

Because Bitcoin CFDs are derivative products, it essentially means you can get access to high leveraged trading. 

For example, here at SwitchMarkets, we offer a leverage ratio of 3:1 on digital currencies (the majority of CFD brokers offer a leverage ratio of 2:1 for trading cryptocurrencies).  So, when you make a deposit of $1000 to your CFD trading account, you basically can control a Bitcoin position size of $3000. 

3. No Need to Store Your Bitcoins on a Digital Crypto Wallet

As we mentioned previously, Bitcoin (or any other cryptocurrency) needs to be stored in a Bitcoin wallet. The options include a hot wallet, which is essentially a software wallet that is connected to the internet, and a cold wallet that is a physical device you need to purchase and enables you to safely store your private keys offline. 

At the same time, if you are not tech-savvy, then it could be very complicated and risky to use a digital wallet. After all, if you lose your private keys, you also lose your Bitcoins forever.  On the other hand, when you buy Bitcoin CFDs, there’s no need to store your coins in a wallet simply because it is an agreement between you and another party to simply speculate on Bitcoin’s price. 

4. CFDs Enable Investors to Buy and Short Sell Bitcoin

One of the main attractions of cryptocurrency trading in the form of CFDs when compared to trading assets on exchanges is the ability to buy and short sell assets without having to meet strict margin requirements. Much like share trading, when you trade Bitcoin on an exchange, you cannot short sell it (unless you are trading Bitcoin futures on the Chicago Mercantile Exchange). 

Therefore, presently the only method of properly trading Bitcoin in both directions is by CFDs. This means you can make profits when Bitcoin prices rise but also in times of falling prices of the most popular digital currency. 

5. Trading Costs

As you may assume, trading Bitcoin CFDs is not free of charge. CFD brokers charge a bid and ask spread that is fairly high and might be an obstacle in your trading journey. 

Nonetheless, when comparing the costs you need to pay to trade Bitcoin via CFDs or directly on the exchange – the first option is still the better of the two. This is not only because the costs are significantly lower but also because you can be more aware of the costs of trading Bitcoin CFDs than when trading via an exchange. 

For example, if you decide to trade BTC versus the US dollar at SwitchMarkets, you are required to pay a buy and sell spread of around 70 pips, which is considered very competitive in comparison to other brokers in the industry.

Fun Fact

Satoshi Nakamoto, who is allegedly the creator of Bitcoin, has mined 1,125,150 Bitcoin tokens after creating the most popular digital asset in the world. As of November 2021, Bitcoin is trading at slightly above $63,000, making Nakamoto’s net worth well over $65 billion. 

What Are the Disadvantages of Bitcoin CFD Trading?

As with most other things, with every good thing comes something bad. Buying Bitcoin CFDs can be a great solution if you wish to simply speculate on Bitcoin price without having the hassle of opening an exchange account and having to store your Bitcoins in a wallet. However, there are some cons to take into consideration if you would like to buy Bitcoins in the form of CFDs:

  • You cannot use Bitcoins as a medium of exchange to purchase goods and services
  • CFD brokers typically charge an overnight fee, meaning if you are holding a Bitcoin CFD position open overnight, you basically need to pay a fixed rate for each trading day. 
  • You do not get the experience of the new and exciting cryptocurrency market that includes transferring funds via wallets, chatting on communities, trade on crypto exchanges, etc.
  • Margin trading is risky and can lead to losing money rapidly.
  • You cannot stake cryptocurrencies, a process that has become very popular in the crypto scene. For those unaware, staking is similar in nature to fixed income investment where you are ‘locking’ your digital assets for a fixed period of time and get a fixed income in return. 

FYI

For mining, Bitcoin uses more electricity than many countries around the world – one of the biggest problems for the development of this cryptocurrency. To track the estimation of Bitcoin’s real-time electricity consumption, users can follow the Cambridge Bitcoin Electricity Consumption Index (CBECI).

The Bottom Line

To sum up, in one way or another, everybody wants to be part of the Bitcoin craze. It is the most exciting and talked-about asset in the markets and generally these days. That said, not every person has the knowledge and skills to trade Bitcoins in the traditional way – meaning via crypto exchanges. 

Therefore, if you explore the ways available in the markets to trade Bitcoin, you’ll realize that you have two main options – via the spot market (meaning crypto exchanges), or via CFDs. Predictably, the second method is favorable for many individuals who prefer to get access to Bitcoin trading without the hassle of opening an account at a crypto exchange that includes a long verification process and having to store your coins on a Bitcoin wallet. 

If you wish to start trading Bitcoin via CFDs, here at SwitchMarkets we offer Bitcoin trading with a leverage ratio of 3:1 on one of the most popular and widely used trading platforms in the market, the MetaTrader4. Additionally, you can gain exposure to other cryptocurrencies that include Ethereum, Litecoin, and Ripple.

FAQs

Is Bitcoin liquid?

Overall, Bitcoin is certainly a liquid asset. However, its liquidity largely depends on the exchange you use to buy and sell Bitcoins. On some exchanges, the liquidity is very low, meaning the buy and sell spreads are high and you may not find buyers and sellers at any given moment. In that aspect, with CFDs, you don’t need to worry about liquidity as the broker ensures you always get an execution. 

Are Bitcoin CFDs safe?

Basically, yes. As long as you are opening an account with a regulated brokerage firm, then your money is completely safe. In fact, due to the status of crypto exchanges and the complicated market conditions, it’s even safer to trade cryptocurrency CFDs than doing that on crypto exchanges. 

Can you trade Bitcoin on MT4?

Yes, it is possible to trade Bitcoin on MetaTrader4 as long as you find a brokerage firm like SwitchMarkets that provides Bitcoin on MT4. For those who are not familiar with MT4, it is the most popular and widely used trading platform among forex and CFD traders. 

What is the leverage ratio you can get when you trade Bitcoin CFDs?

Generally, the vast majority of CFD brokers enable traders to use a leverage ratio of 2:1 on cryptocurrency assets, largely due to the high volatility of digital currencies. Some brokers like SwitchMarkets, for example, offer even higher leverage of 3:1.