Bitcoin is becoming a safe-haven asset, and institutions have taken note

Bitcoin (BTC) saw a sharp rally over the  month, hitting a 12-month high around $31,000 on April 14th at the same time that Ether (ETH) was enjoying its post-Shapella surge. According to Anthony Georgiades, co-founder of Pastel Network and General Partner at Innovating Capital, BTC’s recent moves show that the number-one cryptocurrency is maturing and evolving as an asset, which could change how it responds to future economic events.

“The breakout really started after the banking issues began to unfold, and it was quite fascinating,” Georgiades said. “It’s really a couple of paradoxical factors that represent both the past, in which Bitcoin’s value has been largely speculative in demand, and the future, in which Bitcoin started to really step into its role as that safe-haven asset.”

Georgiades told Kitco News reporter Ernest Hoffman that Bitcoin’s price movements are becoming more complex as different investors use it for different purposes.

“In one instance, we saw this sort of de-dollarization, consumers, institutions, investors losing trust in the dollar, in traditional financial institutions, and seeking alternative safe-haven assets like Bitcoin to serve as this hedge against instability, against the potential risk of a collapse in the established financial system,” he said. “On the flip side, you also saw some of its speculative-driven nature. You had the Fed’s overall lending program to the banks, which reversed a lot of the quantitative tightening that the Fed had put in place to curb inflation.”

“So you had a little bit of driven demand from both functions.”

Georgiades said the recent sell-off could be markets realizing that we’re not out of the woods just yet. “Bitcoin is still responding to that risk on nature that it’s been born out of, and has really behaved like for the last decade-plus.”

He said another area worth looking at is the growth of institutional interest in Bitcoin, which has become more apparent in recent weeks. “If you look at the height of 2021 and the height of the market, you didn’t necessarily see institutions diving into Bitcoin as a speculative asset,” he said. “You have seen that over the last few weeks, and you’re continuing to see that. There was that institutional interest in acquiring and holding Bitcoin as a safe-haven hedge against the dollar, against the financial system.”

Georgiades said Bitcoin is also benefiting from the de-dollarization trend playing out internationally as well as in the United States.

“Bitcoin is becoming much more understandable, what it is and what it isn’t,” he said. “The ability to self-custody, the ability to own an asset that isn’t susceptible to monetary policy, whether you want to call it manipulation or functions that are driven by a variety of factors, Bitcoin just continues to exist on its own. It’s, by the SEC standard, sufficiently decentralized. What’s another asset that really owns that characteristic and trait?”

In the current environment, with significant risks to growth as well as persistent inflationary pressures, Georgiades said predicting Bitcoin’s response to key economic indicators is very difficult.

“There’s a few things going on right now, and first, just in terms of those functions, is it risk-on or is it risk-off? It’s more convoluted than that, it’s not so binary,” he said. “If you look at emerging markets, Bitcoin has behaved as a risk-off, safe-haven asset. If you look at established economies, Bitcoin has behaved as a risk-on asset.”

He said that with key U.S. economic indicators, Bitcoin will likely respond positively to indicators that support more easing and more speculative asset growth. “If we do see inflation start to come down, or we see GDP growth coming in lower than expected, we will likely intuitively believe that the Fed’s policies have been working and they might not need to hike as high, or they might not need to carry the accumulated weight of those rate increases as long as we initially thought,” he said.

“If those things happen, we’ll probably see a continued rally in all risk-on assets.”