Let the data speak: Is BTC just a delusion as a safe-haven asset?

Author: JZ INVEST Source X, @jzinvest_xyz

In mid-April, Iran launched an attack on Israel, and the conflict between the two countries was imminent. Bitcoin, known as "digital gold", plummeted 15% in two days, and once plummeted to nearly $60,000.

When the war broke out, BTC prices not only did not show the upward trend before and after the outbreak of the Ukrainian-Russian war, but instead collapsed the entire currency market with the international conflict. Does this mean that Bitcoin does not have the characteristics of a safe-haven asset?

In the three international conflicts, the single variable that affects the price trend of BTC is not just "whether it can be hedged". The popularity of local cryptocurrencies, whether the country is subject to economic sanctions, and whether local residents have initiated cryptocurrency fundraising may all affect the price trend from the perspective of market sentiment or actual use cases.

This article reviews the price trend of Bitcoin after three regional conflicts in the past two years, compares the factors that affect the trend of cryptocurrencies in the three conflicts, and analyzes whether Bitcoin has the characteristics of a safe-haven asset.

Article Outline

1. Russia-Ukraine War

Critical Time Points of the War

Bitcoin, Gold, S&P 500 Price Trends

Local Cryptocurrency Popularity

Cryptocurrency Fundraising

Economic Sanctions

2. Israel-Hamas Conflict

Critical Time Points of the War

Bitcoin, Gold, S&P 500 Price Trends

Local Cryptocurrency Popularity

Cryptocurrency Fundraising

Economic Sanctions

Key time points of the war

Price trends of Bitcoin, gold and S&P 500

Local cryptocurrency penetration rate

Summary

1. Russia-Ukraine War

Key time points of the war

Price trends of Bitcoin, gold and S&P 500

Bitcoin: There was a sharp fluctuation on the day the war broke out. It started to rise and exceeded $40,000 four days later, but then fell continuously from April to July. Gold: There was an upward trend, reaching a high of $2,068 in March. In the two months after the outbreak of the conflict, it remained above $1,900. But from April to July, it fluctuated and fell like BTC. S&P 500: There was a brief rise after the war started, but it continued to fall from April to mid-June (the red line in the figure below is the time when the conflict broke out) In 2022, affected by the continuous hawkishness of the Federal Reserve and the tightening of global liquidity, Bitcoin ended the bull market that had continued to rise for the previous two years and entered a bear market with a volatile downward trend. Although Bitcoin and gold saw an uptrend when the war started, they immediately returned to a downward trend two months later.

However, the S&P 500, which is a "risk asset", had a very similar trend to Bitcoin and gold at the time. Therefore, it is difficult to judge whether BTC is a safe-haven asset or a safe-haven asset.

Local cryptocurrency penetration rate

Data source: Triple A

Cryptocurrency fundraising

According to statistics from blockchain analysis company Elliptic, within less than two weeks of the start of the war, the Ukrainian government received more than 35,000 cryptocurrency donations and raised more than $35 million.

Although this move cannot have a direct impact on the price of BTC, it has certainly attracted the attention of the market to cryptocurrencies. The effectiveness of cryptocurrencies in wars and other extreme events has begun to be explored.

Economic sanctions

The outbreak of war often causes the country's fiat currency exchange rate to plummet. Fiat assets deposited in local banks may also be unable to be transferred abroad due to economic sanctions or local government martial law. In such an emergency, people will begin to transfer and exchange their fiat currencies to protect the safety of their assets.

Since invading Ukraine, Russia has faced more than 16,500 sanctions imposed by the United States, Britain, the European Union, Australia, Canada and Japan. The European Union said at the time that up to 70% of Russian banks' assets were frozen and nearly half of their foreign exchange reserves were frozen, worth $350 billion. Some of these banks were also excluded from the Swift international funds clearing system.

In Ukraine, due to the government's martial law, the central bank has imposed restrictions on foreign exchange transactions, and people cannot buy dollars or euros for safe havens. The transfer of monetary funds is also restricted.

Chainalysis analyzed the order book data of Binance and LocalBitcoins, two exchanges that accept local fiat currencies, from July 2021 to August 2022. In March, the trading volume of the Ukrainian currency UAH increased by 121% from the previous month, while the trading volume of the Russian currency RUB also increased by 35%.

At the same time, Chainalysis also counted the monthly amount of cryptocurrency transfers in Eastern European countries between July 2021 and June 2022.

From the beginning of the war to June 2022, the volume of cryptocurrency transfers in Ukraine continued to increase.

However, after a short-term increase in March, the volume of transactions in Russia remained in a relatively narrow range. This may be attributed to the fact that many cryptocurrency institutions and exchanges began to impose restrictions on users in the Russian region.

The reason behind the increase in trading volume and fund transfers may be that Russia faces economic sanctions, and the Central Bank of Ukraine has restricted local foreign exchange transactions and fund transfers. In order to move assets abroad or to avoid risks, local residents and companies began to convert fiat currencies into cryptocurrencies.

2. Israel-Hamas conflict

Key time points of the war

Price trends of Bitcoin, gold and S&P 500

Bitcoin: Bitcoin fell in a short period of time, but has been rising for 7 consecutive months since mid-October

Gold: It has continued to fluctuate and rise since the war, but the increase is far less strong than BTC

S&P 500: It fell after the war broke out, but rebounded at the end of October and has been rising ever since

(The red line in the figure below is the time when the conflict broke out)

After the war started, Bitcoin and S&P 500 fell for a short time, and only gold rose. But after mid-October, the upward trend was close, with different increases.

In terms of Bitcoin prices, since mid-2023, the optimism about the passage of Bitcoin ETF has continued to push up the price of the currency. Therefore, after a short-term decline, a 7-month-long rise began.

Local cryptocurrency penetration rate

Data source: Triple A, Gemini

Vitalik also pointed out at this year's Hong Kong Web3 Festival that the efficiency of ZK-SNARK proof generation is low and hardware acceleration is needed to generate proofs.

Cryptocurrency fundraising

After the outbreak of the war, both the Palestinian and Israeli sides tried to raise funds through cryptocurrency for military expenses, rescue, etc. Among them, the Israeli crypto community established Crypto Aid Israel, and the Palestinian side also raised funds through cryptocurrency.

According to a report by BitOK, a cryptocurrency research organization, wallets associated with Hamas received a total of about $41 million from August 2021 to June this year.

Economic sanctions

In the case of the Ukrainian-Russian war, cryptocurrencies may be used as a tool to circumvent economic sanctions. However, Israel continues to take measures to strangle Hamas's economic sources, including cryptocurrency flows.

According to the Times of Israel, the Israeli police worked with Binance to freeze nearly 200 Binance accounts associated with Hamas. In addition, Tether quickly froze 32 addresses related to terrorism and war a week after the war began, holding a total of 873,118.34 USDT.

3. Israel-Iran War

Key time points of the war

Price trends of Bitcoin, gold and S&P 500

Bitcoin: Bitcoin plummeted 15% in two days, once approaching the $60,000 mark, and then rebounded slightly

Gold: Gold rose first and then fell, and currently rebounded to around $2,391

S&P 500: It has been falling since April 15

(The red line in the figure below is the time when the conflict broke out)

Local cryptocurrency penetration rate

Data source: Triple A, Gemini

Iran is the sixth country with the highest cryptocurrency penetration rate, and the number of people holding cryptocurrency also exceeds that of Russia, Ukraine, Israel, and Palestine in this comparison. However, in this Israeli-Iranian conflict, so far, no economic sanctions have been imposed on Israel and Iran by the United States or other European countries, and no cryptocurrency-related fundraising has been seen. Therefore, the attention to the wartime use case of cryptocurrency is relatively low.

Fourth, Conclusion

Bitcoin has a limited total supply, is relatively resilient to traditional market fluctuations, and is considered by cryptocurrency investors to have the ability to store value, so there is a discussion that it can be used as a safe-haven asset.

However, in the recent three international conflicts, the price trend of Bitcoin is sometimes closer to risky assets: S&P 500, and the general economic situation and the overall market conditions of the currency circle have greatly affected the price fluctuations of Bitcoin. Therefore, it is still impossible to assert whether it has safe-haven characteristics.

Cathie Wood used the example of the US banking crisis in 2023 to say that Bitcoin is not only a risky asset, but also a safe-haven asset.

We witnessed this last year: a crisis broke out in the US regional banks, but Bitcoin rose by 40%. Bitcoin has no counterparty risk, it is both a risky asset and a safe-haven asset.

From this, it can be seen that if you want to reduce volatility when the overall market is turbulent, gold may be a better choice. Because gold has smaller long-term and short-term fluctuations and a higher value preservation rate. If you also want to have investment and value-added benefits, and can bear higher price fluctuations, then Bitcoin, which has the characteristics of both risk assets and safe-haven assets, may be a better choice.