Bitcoin big dump 20% Global financial markets in turmoil the safe-haven function of digital gold is questioned

March 9, 2020, is destined to become an important page in the history of finance.

Since the implementation of the circuit breaker mechanism after the "Black Monday" in the U.S. stock market in 1987, the Dow Jones Industrial Average first triggered a circuit breaker on October 27, 1997, falling by 7.18%, setting the record for the largest single-day drop since 1915.

After many years, on March 9, 2020, affected by multiple factors such as the spread of the COVID-19 pandemic, the presidential primary elections in the United States, and the plummeting oil prices, the U.S. stock market crashed again and triggered a circuit breaker, marking the second time in history. The global stock market subsequently experienced turbulence.

At the same time, the cryptocurrency market has also been unable to escape difficulties. Bitcoin, known as "digital gold," has continuously broken through the key support levels of $8000 and $7800, falling from $9170 to $7680, with a decline of nearly 20% within two days. The liquidation amount for futures trading on major exchanges has reached nearly $700 million.

Analysts generally believe that the sharp decline in U.S. stocks is the result of multiple factors, including the COVID-19 pandemic, the Middle East oil price war, and the U.S. elections. In fact, prior to this decline, global financial markets were already lacking liquidity, and market performance was below expectations. Market funds are not as abundant as imagined, and the presence of significant leverage can easily trigger a liquidity crisis.

The synchronized crash of global financial markets has spurred investors' demand for safe havens. Panic sentiment has driven more people to sell stocks and withdraw from the commodity futures market, with funds beginning to flow into traditional safe-haven assets such as gold, cash, and government bonds.

In the field of blockchain, Bitcoin is often seen as having significant value storage capabilities due to its scarcity and is considered a potential safe-haven asset. During the economic crisis in Venezuela, Bitcoin was one of the safe-haven choices for the local population. However, in this global financial asset crash, Bitcoin did not rise like gold, but instead experienced a significant decline.

So, can Bitcoin, known as "digital gold", play the role of a safe-haven asset when needed?

Some senior analysts oppose the statement that "Bitcoin is a safe-haven asset." They believe that people's expectations for the Bitcoin market are overly optimistic. The market size of Bitcoin is relatively small, making it difficult to absorb sudden large inflows of safe-haven funds from traditional financial markets. In addition, Bitcoin's price is highly volatile, with an increase of 300% in the first half of 2019, followed by a decline of nearly 50% in the second half. This instability makes it challenging for professional investment teams to consider it a reliable safe-haven tool.

From a risk-hedging perspective, Bitcoin is currently far inferior to gold. Due to the market depth being relatively insufficient compared to the large capital amounts in traditional finance, along with the mainstream investors' understanding and consensus on Bitcoin still needing improvement, Bitcoin now resembles a highly volatile, liquidity-sensitive risk asset rather than a safe-haven asset.

However, the fact that Bitcoin is currently a risk asset does not mean it can never become a safe-haven asset. Compared to traditional financial markets, Bitcoin is still a niche asset. While it may be too early to call it a safe-haven asset now, Bitcoin has undoubtedly come the farthest on the road to "digital gold" and has the most potential.

The financial market is changing rapidly, and investment should be approached with caution. This article is for reference only and does not constitute investment advice. I hope readers can share their insights in the comments section.