During geopolitical conflicts, investors seek assets that maintain a stable value, like gold and silver. Although Bitcoin lacks maturity as a store of value, it is a strong competitor for precious metals.
Bitcoin will not be the leading asset in the current conflicts occurring in Eastern Europe. The recent drop in the price suggests that investors do not seek value in it. They prefer precious metals like gold and silver despite the strength of the narrative of Bitcoin as digital gold.
Due to its current price, Bitcoin does not seem a good alternative store of value against the effects of the war between Russia and Ukraine, while the value of the cryptocurrency recovers from a sharp drop of 8%, that of gold increases by 3.4%.
The panic and speculation in the Bitcoin market contradict the belief that the cryptocurrency will replace gold as a store of value. Its adoption in countries like Venezuela, Argentina, and El Salvador, besides its sustained growth in the pandemic, has reinforced that narrative.
The entry of a growing amount of institutional money into the cryptocurrency market has helped its price couple to institutional assets. There is a high correlation between Bitcoin and stocks of technology companies, also affected by the economic crisis in the United States and worldwide.
In that regard, Bitcoin behaves as a highly volatile speculative vehicle rather than an asset to maintain capital value. That feature can keep investors away and lead them to look for alternatives against the uncertainty of the Russian invasion of Ukraine.
Cryptocurrency expert Vijay Ayyar, vice president of the Luno exchange, considers Bitcoin is in a too early stage of maturity to call it digital gold. Besides, market analyst Eduardo Gavotti notes that the current geopolitical situation could make the price of the cryptocurrency increases its volatility.
Bitcoin Offers People Other Features in this Conflict
The use of Bitcoin goes beyond that of a store-of-value asset, a characteristic that this financial product meets. Therefore, this temporary episode should not affect its reputation as a digital gold in the future.
Bitcoin may become the favorite asset when geopolitical conflicts occur in a few years. However, during the attack by Russia against Ukraine, the pioneering cryptocurrency could only offer limited financial protection.
It complies with most characteristics making an asset a store of value: trust, limited supply, low storage cost, easy transmission, and durability of value. However, its narrative as digital gold fails since its price fluctuates rapidly, not remaining long enough to generate security in the short term.
Although it is not the best time to prove that Bitcoin is the gold of the future, investors continue to seek alternatives to protect their capital. Of course, the cryptocurrency created by Satoshi Nakamoto remains a strong competitor in that process.
Bitcoin stands out as a financial product thanks to its deflationary nature, fully transparent transaction log, censorship resistance, and ease of trading. During an economic and political conflict, the most vulnerable look for tools like BTC that protect them and make their daily lives easier.
Although many people will buy futures in gold or jewelry to keep their capital safe, they may also see value in Bitcoin. The cryptocurrency can give citizens power over their money while resisting censorship and authoritarianism.
By Alexander Salazar
