2022-2-2 02:59 |
Bitcoin has outperformed all crypto Market Cap-Weighted Indexes in January as traders turn to less risky assets amidst fear over the Federal Reserve tightening, thus the king of digital assets claims its position as crypto’s safe heaven.
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Bitcoin As a Crypto Safe HavenThe thought of Bitcoin (BTC) being a safe haven asset is quite popular, but it opposes the critics who claim BTC –and all crypto assets– is too risky, volatile, and speculative to become a safe haven. However, inside the crypto market it remains the less risky asset.
January was a very volatile month for the crypto market amidst the investors fear over The Federal Reserve (FED) hawkish moves, but an Arcane Research report shed light on how Bitcoin outperformed the other crypto indexes in the market during the bloodshed, thus maintaining its image as the less risky crypto asset to investors, especially during times of high volatility and uncertainty.
As traders take a more conservative position and look away from the most speculative assets, the Arcane report highlights how all crypto indexes saw losses between 20% and 31% this past month.
However, like the following charts show, BTC outperformed all altcoins conserving the highest crypto market cap and counting less losses. Meanwhile, the Small Cap Index fell the hardest, showing how the crypto market shifted amidst the traders’ conservatory tendency.
Source: Arcane ResearchSource: Arcane Research
This gets us back to the “BTC as a crypto safe haven” belief, since the digital coin remains the least risky crypto asset to investors, who lean on it in times of turmoil.
On the other hand, the market sentiment is carefully improving “with the Fear and Greed Index now ‘only’ signaling ‘fear’ after a sustained period of ‘extreme fear'”. This could mean a better landscape for altcoins as traders’ position might turn around to the less “boring” assets.
At the moment of writing, Bitcoin trades at $38,545, up 0.98% in the last 24 hours.
Bitcoin trading at $38,545 in the daily chart | Source: BTCUSD on TradingView.com What Studies Have Said Over The YearsBeyond the crypto market, some studies had predicted that “Investors in the US may cautiously use bitcoin as a hedge against uncertainties.”
A study from 2019 that assessed whether Bitcoin could be a hedge at the intraday level gave results that indicated that “Bitcoin can be deemed a hedge at various periods of time” as well as a “diversifier for currency investors.”
Furthermore, their results from a non-temporal threshold analysis revealed that “Bitcoin is a safe haven during high and extreme periods of market turmoil for the CAD, CHF and GBP, but fails to act as a safe haven for the other currencies.”
Then in 2020, other experts concluded the following:
Based on the WHO COVID-19 pandemic proclamation on March 11, 2020, we test the Bitcoin and Ethereum as safe-havens for stocks. Our dynamic correlations and regressions results show that Bitcoin and Ethereum, as the two major cryptocurrencies, display short-term safe-haven characteristics for stocks.
However, other research carried out in the same year had opposing conclusions, coming to deny the digital coin as a safe haven:
“During the period under consideration, we find that the S&P 500 and Bitcoin move in lockstep, resulting in increased downside risk for an investor with an allocation to Bitcoin.”
As the international political and economic panorama evolves with high uncertainties this year, new data to come will most likely be relevant when making a case about how the crypto market reacts and which digital coins can become the most useful tools.
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