Bitcoin's Haven Status Tested by Attack on Saudi Oil Plant

Neil Dennis

Crude oil prices shot 10% higher on Monday in response to drone attacks on Saudi Arabian oil infrastructure this weekend. Gold and other haven assets responded with gains as the prospect of conflict in the Middle East increased, and left bitcoin investors the decision whether or not the cryptocurrency represents a safe store of value in times of turmoil.

Crude Oil's price performanceOil's price jumped | Source: Yahoo Finance

Broad and strong oil price gains were no surprise. The attacks - claimed by Yemeni Houthi rebels, but suspected by the U.S. to be Iran-backed - caused disruptions to nearly 5% of global oil supply, and could - some analysts predict - cause the biggest supply shortage in history. Analysts at FXTM said:

Such an event may have far more catastrophic consequences on the world economy than any other event which has occurred over the past couple of years. The price shock on oil prices seen today is the largest in almost three decades since Saddam Hussein invaded Kuwait back in the 1990s.

Flight to Safety

Recent narrative behind bitcoin's new-found stability has suggested that rising institutional interest in cryptocurrencies has helped form a floor around the $9,500 mark for the top digital asset by market capitalization.

Thus, it is increasingly being seen as a stable store of value, much like gold: indeed, bitcoin's growing reputation as "digital gold", or "gold 2.0" is earning the digital token a position among the more traditional haven assets such as precious metals and goverment bonds.

Nigel Green, chief executive of independent financial advisory service DeVere Group, has bought into the bitcoin-as-a-haven-asset narrative and believes that such events as seen over the weekend could drive the bitcoin price above $15,000. He said:

Bitcoin is currently realising its reputation as a form of digital gold. Up to now, gold has been known as the ultimate safe-haven asset, but Bitcoin - which shares its key characteristics of being a store of value and scarcity – could potentially dethrone gold in the future as the world becomes increasingly digitalized.

Risk-On, Risk-Off

A possibly conflicting narrative, however, has been suggested by Fundstrat chief executive Tom Lee. Research by the investment advisory company has shown that the best three-or-four years for the S&P 500, the U.S. equity market index, coincided with the best years for bitcoin.

Lee said last week that he believed the next big catalyst for a bitcoin rally would be a decisive break higher in the equity markets - an unlikely scenario if the threat of Middle-East conflict and oil market shortages are bubbling in the background.

So is bitcoin a risk-on or a risk-off asset? Lee said sentiment worked both ways and called bitcoin "ambidextrous" in an interview last week. 

On Monday, real gold's haven status was confirmed with a rally of nearly 1%. The Swiss franc, a haven currency was among those outperforming on foreign exchanges. Equity markets were broadly lower, but not exhibiting the scale of losses that suggested investors were preparing for a regional war. Thus, bitcoin's reaction was reasonably muted, falling just 1.4% to $10,170.

Indeed, the event may be isolated and become eventually overlooked by markets which have witnessed previous tensions in the region rise and ebb. 

 

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