Bitcoin is commonly said to be a more secure financial asset over time than traditional fiat currencies like the US dollar, yen, Swiss franc or euro. This assumption has been repeatedly put to the test over the last few months and years as wars have raged across the globe. Is it good to hold Bitcoin in time of war or is it during wartime when you need to dump your Bitcoin holdings?
Wars and the Price of Bitcoin
Military conflicts over the last few years include Russia’s invasion of Ukraine, the Hamas attack of Israel, the subsequent Israeli invasion and devastation of Gaza, related attacks taking out Hezbollah assets and Iranian Quds force commanders in Lebanon, and both Israeli and American air attacks on Iran culminating in the most recent attacks of Iran by the US and Israel and Iran’s response attacking other Gulf oil states and effectively blocking the Strait of Hormuz through which a fourth of all crude oil passes on its way to refiners and consumers worldwide. Geopolitical risk has risen and fallen due to these conflicts and that risk has affected stock markets and interest but geopolitical risk has not had any lasting effect on Bitcoin prices.
Bitcoin and the Economy
Over time Bitcoin has tended to rise and fall along with the NASDAQ index which, in turn, is driven by the economy. To the extent that the current war with Iran results in long term closure of the Strait of Hormuz it will cause a scarcity of oil and economic damage in many parts of the globe. That situation will cause markets to fall including the NASDAQ, which may well drive the price of Bitcoin down.
Is Bitcoin a Refuge in Time of War?
When Russia invaded Ukraine we reported how folks fled Ukraine with the bulk of their economic assets on USB drives in their pockets, such is the ability of cryptocurrencies including Bitcoin provide a haven and refuge in time of war. Russia’s oligarchs are said to have used cryptocurrencies to hid, move, and preserve their assets in the face of sanctions by the EU and USA. These are effectively short term benefits tied to the original purpose of Bitcoin to be used as a means of transferring assets outside of the traditional financial system. However, the fact that Bitcoin has not turned out to be a way to grow assets during time of war means that anyone interested in growing their wealth after they have preserved it short term using Bitcoin needs to look elsewhere. Coinlive published a useful analysis of this subject and Bitcoin price trajectory during war.
Bitcoin Price Last Five Years
Geopolitical Risk Versus Bitcoin Price
If one compares a graph of geopolitical risk to a graph of Bitcoin price there is not any strong correlation either positive or negative over any significant period of time. Thus, it would seem that cryptocurrencies including Bitcoin may be useful for money transfers in time of war but are not a sort of safe haven like the US dollar or gold where people routinely park their money during dangerous times.