Bitcoin big dump 20% Under the financial crisis, can digital gold become a safe-haven asset?

March 9, 2020, is destined to be recorded in the annals of financial history.

Since the implementation of the circuit breaker mechanism after the "Black Monday" of the US stock market in 1987, the 7.18% drop of the Dow Jones Industrial Average on October 27, 1997, first triggered the circuit breaker, setting the record for the largest single-day drop since 1915.

On March 9, 2020, affected by the spread of the COVID-19 pandemic, U.S. presidential primaries, and the plummeting of crude oil prices, the U.S. stock market crashed again, triggering the circuit breaker mechanism for the second time in history, causing global stock markets to fluctuate.

At the same time, the cryptocurrency market also suffered heavy losses. Bitcoin, known as "digital gold," fell from $9170 to $7680, breaking through the key support levels of $8000 and $7800 in succession, with a decline of nearly 20% within two days. The liquidation amount of futures trading at leading exchanges reached nearly $700 million.

Most investment institutions believe that the sharp decline in the US stock market is the result of multiple overlapping factors. Previously, the liquidity in the global financial trading market had already shown signs of insufficiency, and market performance was below expectations. The actual circulating funds are limited, and the presence of significant leverage makes it easy to trigger liquidity issues.

The synchronized plunge in the global financial markets has triggered a demand for safe havens, with panic driving investors to sell stocks and exit the commodity futures market, while funds are flowing into safe-haven assets such as gold, cash, and government bonds.

In the blockchain industry, Bitcoin is regarded as having significant value storage function due to its scarcity and was once considered a potential safe-haven asset. However, during the recent global financial asset crash, Bitcoin did not exhibit an upward trend similar to gold; instead, it experienced a sharp decline.

So, can Bitcoin, known as "digital gold," play the role of a safe-haven asset during times of crisis?

Some analysts believe that viewing Bitcoin as a safe-haven asset is overly optimistic. First, the Bitcoin market is relatively small and cannot withstand a sudden influx of large amounts of capital from traditional financial markets. Second, Bitcoin's price is highly volatile, having tripled in the first half of 2019 and then dropped by nearly 50% in the second half. This instability makes professional investment teams unlikely to regard it as a safe-haven tool.

From a risk-hedging perspective, Bitcoin currently falls far short of gold. Due to the market's insufficient depth to accommodate the vast capital of traditional finance, coupled with the lack of mainstream recognition and consensus, Bitcoin currently resembles a high-volatility, liquidity-sensitive risk asset rather than a safe haven asset.

However, the fact that Bitcoin is currently a risk asset does not mean it can never become a safe-haven asset. Compared to traditional financial markets, Bitcoin is still a niche asset. Although it is premature to label it as a safe-haven asset now, on the road to becoming "digital gold," Bitcoin has undoubtedly come the farthest and has the most potential.

The cryptocurrency market is highly risky, and investment should be approached with caution. This article is for reference only and does not constitute investment advice.