Is Bitcoin Now a Safe-Haven Asset? If So, Then It Could Be Hugely Undervalued at Just $70,000
Key Points
After sliding in value for months, Bitcoin has reversed course as a result of geopolitical tensions in the Middle East.
Just one year ago, Bitcoin was widely viewed as a potential safe asset.
If the performance gap between gold and Bitcoin narrows, Bitcoin could regain its status.
- 10 stocks we like better than Bitcoin ›
Market sentiment in the crypto market can turn on a dime. The latest example of that involves Bitcoin (CRYPTO: BTC). Just five months ago, the price of Bitcoin was soaring, but it's now down to about $70,000, a decline of almost 45% from its record high in October.
That's a remarkable reversal of fortune for the world's top cryptocurrency. In the minds of many investors, Bitcoin was as far from a safe asset as possible. So after recovering some lost ground, is Bitcoin on the way back?
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The search for safe haven status
Heading into 2025, the conventional wisdom was that Bitcoin was a long-term store of value, and one of the best ways to preserve wealth amid macroeconomic headwinds and geopolitical tensions. In fact, some hedge fund investors and Bitcoin advocates were banging the table for the crypto as a digital version of gold.
But by the end of last year, that argument had pretty much fallen apart. While gold is up nearly 75% d the past 12 months, Bitcoin is still far away from its all-time high of $126,000. For the past five months, the two assets have been trading in opposite directions.
Image source: Getty Images.
However, the behavior of financial markets in the aftermath of the Iran strikes has been, well, strange. Yes, the price of oil is up, and that's not so strange. But why are U.S. government bond yields trending up? And why has the reaction of the U.S. stock market been, in the words of Goldman Sachs (NYSE: GS) Chairman and Chief Executive Officer David Solomon, so "benign"?
Bitcoin's performance during the first week of the Iran war has been interesting, to say the least. It initially tanked in value as soon as missiles began to fly. But now it's been climbing, and is up about to $70,000 (as of March 10). Some think this mini-rally could propel Bitcoin higher, perhaps all the way to the $80,000 price level.
A bull trap for Bitcoin investors?
Just keep in mind: This could also be a bull trap for Bitcoin traders. In other words, the price of Bitcoin will rise just high enough to lure in new investors, at which point the trap will suddenly spring shut. At that point, the price of Bitcoin will once again decline, and investors who bought into all the hype about Bitcoin being back will be trapped.
But I don't think so. According to research from asset management giant BlackRock (NYSE: BLK), what's happening now in the aftermath of the Iran conflict is the same pattern that has emerged after other financial shocks. The knee-jerk reaction is always to move money into gold. But once the initial panic subsides, money moves into Bitcoin.
An investment in Bitcoin is never going to be safe, of course. But Bitcoin is once again showing signs of emerging as a safe-haven asset for investors looking for shelter from the geopolitical storm. At a price of just $70,000, Bitcoin could be hugely undervalued.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin and Goldman Sachs Group. The Motley Fool recommends BlackRock. The Motley Fool has a disclosure policy.
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