Why Bitcoin Keeps Bleeding on Every Black Swan Event

Touted as 'digital gold,' bitcoin seems to keep failing to become a refugee asset.

You are reading The Third Angle. The publication is mostly about crypto and economics, my areas of expertise, but could also be about many other things such as geopolitics, science, AI, and health: all areas I love as well.

The Third Angle is run by Juan Aranovich, an economist from Argentina, managing editor of Unchained, researcher at Ryze Labs, and crypto enthusiast.

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In the wake of the attack by Iran on Israel, many investors and analysts might have expected Bitcoin to respond as a 'refugee asset', akin to gold during times of crisis. Typically, assets like gold have historically risen in value in times of geopolitical instability or economic uncertainty, as investors seek safe havens for their capital.

However, Bitcoin's response to these events paints a different picture. Despite the dramatic escalation in the Middle East, Bitcoin's price did not exhibit significant positive movement, which could challenge the narrative that Bitcoin acts as a digital safe haven similar to gold.

What Happened With BTC Following the War Rumors and Missiles?

It all started on Friday. Even before any missiles were launched, rumors of a looming conflict between Iran and Israel had folks on edge. These whispers alone were enough to send shivers through the crypto markets, and we saw prices start to slide.

Then, yesterday, when Iran made its move and attacked Israel, the situation deteriorated fast. This wasn’t just another news headline; it was big, and the impact on the crypto market was immediate and severe.

Bitcoin, which many of us hoped would act as a safe haven in times like these, took a nosedive from over $70,000 earlier in the week to around $61,000. In the blink of an eye, the crypto market cap shrunk by a massive $500 billion, with liquidations surpassing $500 million.

Bitcoin has now regained some of its losses and it’s trading at around $64,000. But this is only on the expectation that there’s not going to be further escalation. If escalation were to happen, I’m pretty sure BTC (and the entire crypto markets), would go down again.

Will Bitcoin Ever Be a Refugee Asset?

Watching Bitcoin and other cryptocurrencies plummet during this crisis made me (and plenty of people) reconsider its role as a "refugee asset." Traditionally, assets like gold have been the go-to in times of uncertainty. They're tangible, they've been valued for centuries, and their worth isn’t as influenced by sudden shifts in investor sentiment or regulatory changes, which are common in the crypto world.

Bitcoin has been touted as ‘digital gold’ for over a decade now. However, every time it’s bitcoin’s moment to shine and prove its thesis, it utterly fails.

When Russia invaded Ukraine, BTC plummeted. It later recovered, because it looked like an overreaction.

During the initial phase of the Covid-19 crisis in early 2020, Bitcoin experienced a significant drop in value. On March 12, 2020, Bitcoin's price fell by 50% in a single day, a dramatic decline from its recent highs. This event is known as "Black Thursday" within the crypto community. Again, after that, BTC recovered and reached all-time highs within months. But that response is much more attributed to the liquidity injection by the governments around the world, printing money.

The point here is that, on every black swan event, bitcoin nukes. People become fearful, not reassured.

One would have thought that the introduction of spot bitcoin ETFs in the US and the institutional adoption of the asset might have changed things, but it looks like it didn’t.

All this doesn’t mean BTC won’t ever be digital gold, but for now, it seems Bitcoin is still too tied to the whims of speculative trading and market sentiment to stand firm when the world shakes.