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Have you ever considered adding cryptocurrency as a safe-haven asset to your portfolio? Many investors believe that cryptocurrency (eg Bitcoin, Ethereum and so on) is a safe asset. However, what are the characteristics of a safe asset?
A safe asset is linked to general market and economic activities. So it can gain value even when the economy is low. In addition, it is impervious to market failures and economic downturns, and returns positive results in economic growth. Most importantly, safe assets have low volatility.
Let’s take a closer look at Bitcoin. In the year After a stellar 1600% price increase since 2015 and a peak price of nearly $64,000 per Bitcoin during the Covid-19 era, Bitcoin has dropped to $16,000 per Bitcoin in 2022 and has failed to gain traction. Regardless of its popularity and ability to survive since its inception, Bitcoin has proven to be incredibly volatile, raising questions about whether it (and other cryptocurrencies) is really as safe an asset as its proponents like to claim.
Other cryptocurrencies (such as OneCoin, Bitconnect and DIMCoin, to name a few) have been killed by insurgency and have short lifespans, while others (such as Galaxy and TaishaCoin) have failed to take off in the Covid-19 and post-Covid-19 era. . To make matters worse, some cryptocurrencies were based on complete scams where investors lost all their money.
One of the main reasons why cryptocurrency is so volatile is that some are driven by speculators, ‘influencers’ and ‘whales’, who buy and sell huge amounts of cryptocurrency at once. In other words, cryptocurrencies are not driven by fundamentals – in general, they become the basis of other markets.
With these things in mind, it is important to note that cryptocurrency is definitely a risky asset – and should not be considered a safe haven.
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