Why Does Bitcoin Drop During Times of Tension?

Is Bitcoin’s temporary negative reaction to the Iranian bombing of Israel a sign that it may not be a safe haven?

Bitcoin, the Canary in the Coal Mine

This is the question posed by Andrew Ross Sorkin. The CNBC journalist was quick to draw his weapon, having been gently mocked a few weeks ago for claiming that Bitcoin’s volatility prevented it from being a store of value.

Trying to understand Bitcoin's price movements this weekend…If it is, as Bitcoin bulls believe, a store of value, during a war, wouldn't it be a considered safe haven? And if it is a hedge against inflation, wouldn't buyers rush to it out of fear that countries will spend more…

— Andrew Ross Sorkin (@andrewrsorkin) April 14, 2024

The issue with this question is that it assumes there would be a war. There’s no war, just a well-telegraphed and orchestrated conflict. But let’s assume…

The CEO of Strike app Jack Mallers responded that in such times, “markets sell what they can, by default”.

“For example, it is impossible to sell commercial real estate with a click on a Sunday. Bitcoin is one of the few free and liquid markets that exist. The reaction is immediate. It behaved similarly in March 2020 (Covid), when it fell to $3,000 only to eventually surge to $70,000 a year later. I expect this scenario to play out again.“

In other words, Bitcoin is all that remains to express one’s anxiety after markets close. It’s often on weekends when tragic events occur, when the general public is distracted…

The miner and CEO of Barefoot Mining Bob Burnett offers a similar explanation:

“Bitcoin is both a risk asset and a risk-free asset. In the short term, it serves as a canary in the coal mine for global events. That’s why it appears vulnerable during periods of uncertainty. But history shows that this is usually short-lived. Bitcoin eventually recovers due to its long-term store of value nature.“

How could Bitcoin not be a safe haven in the event of war? Or in hyperinflationary events like the closure of the Strait of Hormuz?

Bitcoin is the only thing that exists in an absolutely finite quantity and can be owned outright. All it takes is remembering 12 words…

It is the ultimate safe haven against inflationary shocks and the ravages of war. Look at the credit cards of Ukrainians that no longer work abroad. Only those who had bitcoins were able to flee rather than being forcibly enlisted in the army.

Regardless, Bitcoin has already erased its losses, back above $66,000 at the time of writing these lines. Still with $100,000 in its sights.