From the very ancient time to now, Bitcoin has proved itself as a safe haven asset in the time of financial downfall. This is actually so for which Bitcoin was designed. But the price drop by 31 percent while the S&P dropped by a quarter really came with depression to bitcoin users. The correlation between S&P and bitcoin went slightly negative in February to 0.6 in March. The piece of news is really pungent to both bitcoin owner or holder and who made hedge against this sell-off. Bitcoin gave a narrow response to the Federal Reserve cutting rates to zero.
There are three types of assets known as safe-haven asset and these are described below:
Safer versions of risky bets:
It is basically an investment made to hedge against a mild recession. An inclusion of less-levered companies in a given industry, high-margin companies, corporate bonds, rather than equities or any investment in a consumer staples company is made here.
Assets people borrow during good times:
This asset class relies on buying Yen, U.S. Treasuries and bonds. Many people buy corporate bonds and bet against Treasury of the same maturity to control their interest rate risk. Basically, when you buy a 10-year corporate bond, you’re making a bet on the creditworthiness of the company. Since Yen rates have been so low for so long, a classic forex trade is to borrow yen and invest in a currency with higher rates. And when you sell your corporate bond, you end up buying the safe asset.
Things you want to own if the world is about to end:
In this critical world condition during COVID-19, the bitcoin’s price performance is not up to the mark so we can’t yet dub it as a safe haven. People are now thinking about the COVID-19whether it is overblown or underblown, they still think of it as a temporary problem from which we will recover in short order. According to a reference of Satoshi conventional wisdom among investors and policy makers today is the government didn’t react fast enough in 2008 to forestall a deflationary spiral. The time around, central banks are moving fast to supply cheap capital to finance institutions. In case of that, governments and economies don’t collapse, and nobody has to flee their home hours ahead of disaster. However, they need to scramble for dollars to service debts and they will sell their stocks, bonds and relevant others to convert it into an asset they can use to pay the bills.