The latest conflict between the United States and Iran has provided Bitcoin with a platform to showcase how it has evolved as a safe haven asset during times of global turmoil.
The relationship between the United States and the Islamic State of Iran reached a critical point when the U.S. carried out an airstrike at an Iraqi airport in Baghdad on January 2. The airstrike targeted the head of Iran’s elite Quds Force, and Abu Mahdi al-Muhandis; the deputy commander of Iran’s Popular Mobilization Forces Qassem Soleimani.
In addition, U.S. President Donald Trump threatened to hit 52 heritage sites ‘very hard’ if the Islamic nation dared to retaliate. Nevertheless, Iran ignored his threats and attacked two Iraqi bases housing American troops through a series of missile attacks on January 8.
As the series of events unfolded, on-chain analyst Willy Woo claimed that Bitcoin showcased its ability as a “wartime safe haven” as it rose over 20 percent.
“I think Bitcoin just got its first successful beta test of being a wartime safe haven, this is a pretty big test for Bitcoin,” said Woo.
On the same token, Messari published an infographic image showing how demand for Bitcoin had rose following the assassination of the Iran general. The surge in interest saw Bitcoin rise up from $6,960 on January 2; to a high of $8,440 on January 8. However, as the United States vowed to resolve the differences and renew the diplomatic relationship between the two countries; investors sold their holdings and the price of the flagship cryptocurrency went down as a result.
U.S. China Trade Wars
Moving forward, this is not the first time that Bitcoin has presented itself as a hedge asset at times of conflict. A similar circumstance unraveled back in May 2019 when the trade wars between the United States and China escalated. The trade wars instilled fears of an economic recession and investors started viewing cryptocurrencies on a new light.
Specifically, investors have preferred Bitcoin as it is not directly exposed to political forces. In addition, it is not dictated by a particular government since it is decentralized; it’s not vulnerable to the ideas of a central bank or political leaders.
As the trade wars inspired a vicious global equity sell-off, its Bitcoin’s insulated nature helped it reach a new multi-highs during the time. Simply put, investors sought refuge from the cryptocurrency as they had no idea where else to hide their wealth.
Bitcoin Not Subject to Similar Forces as other Currencies
People who feel little trust towards the government see Bitcoin as an alternative to fiat currencies. However, Bitcoin and other cryptocurrencies are extremely volatile. During an interview last year, Evan Kuo, CEO of Ampleforth, a digital asset protocol said:
“It’s helpful that it’s volatile in a way that’s not connected to other assets. There’s been almost 10 years of data to suggest that the coin has almost no risk exposure to precious metals; commodities, equities, currencies, and so on.”
In countries experiencing currency issues, the Bitcoin trade has been booming on the local exchanges. For example, Venezuela and Argentina where political tensions have heightened inflation levels and poor economic conditions; Bitcoin trade has picked up. In the case of Venezuela, the government went on to develop its own digital currency. Obviously, that won’t work since they still control the levels of supply.
Conclusion
Bitcoin offers an escape like foreign currency does in moments of inflation and turmoil. When economic turmoil arises, investors can start purchasing Bitcoin to store their savings and protect their wealth. It becomes a borderless currency that they can count on during times of crisis.