Bitcoin, Emerging as a Safe-Haven Asset?

Bitcoin Rebounds Amid Stock Market Turmoil... Seen as a Safe-Haven Asset
Launch of Bitcoin Funds Also a Positive Factor

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Gong Byung-sun] Amid market turmoil caused by the U.S. Federal Reserve's (Fed) indication of tapering (reduction of asset purchases), the leading cryptocurrency Bitcoin rebounded. The price of the traditional safe-haven asset gold showed little change, drawing attention to whether Bitcoin will serve as a safe-haven asset.

According to the domestic cryptocurrency exchange Upbit on the 20th, as of 8:55 a.m., Bitcoin recorded 54.92 million KRW, up 4% compared to the previous day. Having surged more than 20 million KRW in a month, Bitcoin had recently been somewhat sluggish but is now showing signs of recovery.

The launch of Bitcoin financial products on Wall Street is interpreted as having a positive impact. According to cryptocurrency specialized media CoinDesk on the 18th (local time), major U.S. banks JP Morgan and Wells Fargo submitted applications to the U.S. Securities and Exchange Commission (SEC) to launch Bitcoin funds. These funds will be sold to high-net-worth clients and operated in the form of passive funds. Passive funds refer to financial products that track an index without active management by fund managers.

The stock market is shaken by the tapering issue. According to the minutes of the July Federal Open Market Committee (FOMC) released on the 18th, participants agreed that implementing tapering within the year would be appropriate. Following this news, the three major New York indices immediately plunged. On the 18th, the Dow Jones Industrial Average, S&P 500, and Nasdaq fell by 1.08%, 1.07%, and 0.89%, respectively. The domestic stock market was also affected, with the KOSPI and KOSDAQ dropping 1.93% and 2.93%, respectively, the previous day.

As a result, there is an interpretation that Bitcoin is re-emerging as a safe-haven asset instead of gold. This is because Bitcoin is limited to 21 million units, giving it scarcity, and it can be traded across borders without complicated procedures. In the past, JP Morgan also analyzed that institutional investors have begun to treat Bitcoin as a safe-haven asset similar to gold. Meanwhile, gold futures remained steady amid the tapering issue, rising 0.06% from the previous day to $1,782.25 (approximately 2.09 million KRW).

However, there are also concerns that Bitcoin’s unstable status and high volatility should be taken into account. Professor Lee Byung-wook of Seoul National University of Science and Technology said, "Gold is an asset recognized for thousands of years," adding, "Since Bitcoin has a short history and regulatory issues remain, one should invest in cryptocurrencies with caution."