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Is Bitcoin a Plausible Safe Haven in a Panic-Stricken Market?

Ben Hernandez

This article was originally published on ETFTrends.com.

The worst week since the financial crisis in 2008 certainly has investors mulling their options on where to seek safety in this panic-stricken market driven by coronavirus fears. U.S. President Donald Trump held a rare Saturday press conference to help quell the worries, but in the meantime, investors are looking for safe haven options--is Bitcoin one of them?

Bitcoin investors were feeling the love before Valentine's Day as the cryptocurrency's price rose past the $10,000 mark in mid-February before falling as the coronavirus fears put a stranglehold on the stock market. The price of Bitcoin has fallen under $9,000 as of late, which calls to question whether the cryptocurrency can be deemed as a safe haven.

Bitcoin purveyors have regarded it as "digital gold," but unlike the actual precious metal, its fall has been in lockstep with the stock market.

"Bitcoin fell earlier this week as the coronavirus fears started to hit traditional markets, leading some analysts to question the thesis that the 11-year-old cryptocurrency might serve as a safe haven from financial panic, similar to the way many investors view gold," a Coindesk report noted. "Prices for bitcoin fell to $8,627 on Wednesday, the lowest in a month. The digital asset was born in the throes of the last global financial crisis, more than a decade ago. But some optimism returned to the market on Thursday, with the cryptocurrency's price rebound leaving prices up 24 percent on the year."

As such, investors shouldn't pour capital into bitcoin as a safe haven refuge, but at the same time, shouldn't avoid it completely.

“I don’t think when you wake up and see a coronavirus scare and the Dow down 2,000, you should not be going in and buying bitcoin. That is an idiotic strategy,” Billionaire investor Chamath Palihapitiya told CNBC. “I think a reasonable strategy is to say 1% of my net worth should be in something completely uncorrelated to the world and how the world works. You quietly over some period of time accumulate a position and then just never look at it again and hope that that insurance under the mattress never has to come due. But, if it does, it will protect you.”

Investors, however, can look to bond ETFs for a tangible safe haven option like the iShares 20+ Year Treasury Bond ETF (NasdaqGS: TLT). TLT seeks to track the investment results of the ICE U.S. Treasury 20+ Year Bond Index, which measures the performance of public obligations of the U.S. Treasury that have a remaining maturity greater than or equal to twenty years.

Advantages of adding TLT to your portfolio:

  • Exposure to long-term U.S. Treasury bonds
  • Targeted access to a specific segment of the U.S. Treasury market
  • Use to customize your exposure to Treasuries

The fund carries a paltry expense ratio of just 0.18%, the fund has been returning 14.35% year-to-date, according to Yahoo Finance performance numbers. One thing to remember when investing in long-term bonds is that investors are exposed to duration risk where volatility can arise.

Still, funds like TLT can also help counteract volatility within equities as market-moving events unfold.

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