Putin is not helping bitcoin

One more war has arrived, very striking because Russia is the main protagonist, and it is curious in this scenario, what can happen to bitcoin. 

The fall recorded by the price of the cryptocurrency on Thursday morning, February 24, suggests that investors are not looking for a shelter value in it, on the contrary, it is the precious metals such as gold and silver that are the ones that capture the attention, which is surprising, especially in the face of the strength that has had, in the last year, the narrative of bitcoin as the "digital gold" of our era.

But the charts don't lie. When comparing the prices of gold and bitcoin, the cryptocurrency does not stand up well as a shelter value alternative for those who want to hedge against the effects of a war like the one that started yesterday between Russia and Ukraine. Although bitcoin is recovering from its shocking 8% drop in price in the morning hours, gold has managed to gain 3.4% in value in the last 24 hours.

While as this article is being written the price of bitcoin is climbing to $40,000 per unit, when we compare gold and bitcoin prices since 2019, the numbers speak for themselves. While gold has had an ever-steady growth in value and has maintained stable prices, bitcoin stands out for its marked volatility that does not cease to be affected in the face of the current global outlook.

The panic and speculation in the bitcoin market contradict the belief that the cryptocurrency is currently replacing gold as a shelter value, becoming a financial alternative in the face of the uncertainty of the global economy and the devaluation of fiat currencies, all this reinforced by the adoption of bitcoin in countries such as Venezuela, Argentina or El Salvador, as a "currency of exchange", as well as its sustained growth during the pandemic.

While events such as these suggest that bitcoin can be used as a store of value, the stark reality is that today, bitcoin is nothing more than a risk asset. Volatility in its price has always been an intrinsic characteristic of the cryptocurrency that still needs to mature much more for it to be considered a safe investment alternative.

In this sense, bitcoin, rather than an asset that serves to maintain the true value of any capital, is behaving as a speculative vehicle of high volatility and this is a feature that, without a doubt, can alienate large investors who are looking for something to protect them from the great uncertainty generated by geopolitical events of global impact such as Russia's invasion of Ukraine.

Vijay Ayyar - vice president of the Luno exchange - considers that bitcoin is still at an early stage of its maturity, so it is still too early to consider it the new "digital gold".

It is clear that the current geopolitical situation will not help bitcoin's price recovery and will undoubtedly increase its volatility. Given these forecasts, it is hardly understandable that people who are looking for ways to mobilize their money from Ukraine and other parts of the world, to safeguard their capital, are not thinking of bitcoin as the first alternative.

But it's not all bad for bitcoin 

Despite all the forecasts, bitcoin meets the characteristics of this type of financial product, so the recent slumps in its price should not affect its reputation earned so far as "the digital gold of the future".

In short, in a few years and in other scenarios, bitcoin is likely to become the "investment of choice" when geopolitical conflicts occur, even though, at present, the financial safeguard that bitcoin can offer is very limited.

If we review the characteristics that make an asset a shelter value, we can note that the cryptocurrency meets most of these requirements: 

● Trust
● Limited supply
● Low storage cost
● Easy transmission and durability of its value 

But it is precisely this last element that is failing to a greater extent in the narrative of bitcoin as the new digital gold, since, although in the long term the cryptocurrency continues to gain value, in the short term its price fluctuates rapidly and is not maintained enough to generate security in investors.

In contrast, gold continues to prove that it offers security and stability, something that bitcoin is currently unable to offer. While bitcoin can appreciate more than the precious metal in a matter of hours, it can also lose all of its gains just as quickly.

However, the deflationary nature of the cryptocurrency, its fully transparent record of transactions, its resistance to censorship, and its ease of exchange, make bitcoin a versatile financial product that, in the long run, will continue to attract the attention of those interested in safeguarding their capital against all kinds of unforeseen events.

The ability of bitcoin to give citizens power over their money while resisting censorship and authoritarianism is undoubtedly an attractive factor for many investors, from the smallest to the most powerful.

Because of its digital and private essence, cryptocurrency can become an ally of the politically persecuted, refugees, and all those people who want to keep their money out of the totalitarian power of governments and of course, banks.

So, where do you prefer to invest your money, in bitcoin or gold? Let us know your opinion in the comments box.