During periods of heightened market uncertainty, investors often turn to more stable, lower-risk investment options. Whether it’s gold, silver, or stocks with reliable dividends, these are considered traditional safe-haven assets. While they may not generate massive returns, the stability they offer makes them attractive choices.
For years, cryptocurrency investors have promoted Bitcoin (BTC) as “digital gold,” claiming it can act as a safe investment similarly to gold. Recently, amid rising tensions with Iran, this leading cryptocurrency began to see a rebound. This marks a turning point for the digital asset, which had previously seemed poised for a continued steep decline. But does this reversal truly prove Bitcoin’s status as a safe-haven asset? Can it become a reliable investment choice during market turmoil?
When the US launched military strikes against Iran on February 28, Bitcoin was priced at around $67,000. Over the following week, the cryptocurrency climbed to $74,000. On the surface, it appeared investors were turning to crypto during the tense situation. Yet, just days later, its price had fallen back below $70,000.
Excessive volatility has always been the biggest obstacle to Bitcoin becoming a dependable safe-haven asset. In 2022, for instance, while the S&P 500 index fell 19% due to inflation and economic uncertainty, Bitcoin’s value astonishingly plummeted by 65%. Far from demonstrating safe-asset characteristics, this actually amplified investors’ risks and portfolio volatility.
While it’s tempting to draw parallels between Bitcoin and gold as a store of value, reality shows it is far from achieving the same level of stability and security. Bitcoin’s price movements are extremely difficult to predict. Since the beginning of this year, it has dropped over 20%, whereas the S&P 500 index has only declined by about 1% during the same period.
The recent uptick in Bitcoin’s price during the Iran tensions might simply be coincidental. If investors truly viewed it as a safe-haven asset, we should have observed a much stronger rally. However, that wasn’t the case, and historical data also indicates that Bitcoin performs actively during periods of speculation, not during times of market fear.
Over the long term, it’s almost certain that the cryptocurrency’s price will be higher than current levels, thanks entirely to its scarcity. Regardless of how far prices pull back from all-time highs, the hard cap of 21 million Bitcoins remains immutable. Over 95% of all Bitcoin has already been mined, with only about 450 new coins entering circulation daily. It’s estimated that out of the roughly 20 million Bitcoins in existence, between 3 to 4 million are permanently lost.
This implies that as long as demand remains steady, the asset will face significant upward price pressure, as its supply growth rate diminishes over time. In this context, large holders are consistently accumulating more. US spot Bitcoin ETFs hold approximately 1.2 million Bitcoins. Strategy, formerly MicroStrategy, disclosed in early March that after its latest acquisition, its holdings surpassed 720,000 Bitcoins, and numerous publicly traded companies also hold the asset. Regarding nation-states, the top ten Bitcoin-holding countries control about 2.5% of the circulating supply.
Another key factor suggesting this is an opportune moment to invest in Bitcoin is that its trading price is near, or even below, the production cost for most miners. According to some estimates, the average production cost for a single Bitcoin is $77,000, while other calculations are higher. Some perspectives suggest that when including all costs, the breakeven for mining one Bitcoin could be as high as $167,800. Looking at historical patterns, periods when Bitcoin’s price falls below the cost of production tend to be short-lived, with prices typically rebounding quickly to close the gap.
