Well, so much for that debate. I’d say it’s fairly well put to rest now.
This debate of which I speak is the long back-and-forth centered on bitcoin and whether it’s really a safe-haven asset or just a Ponzi scheme beloved by myopic fanboys who don’t understand real financial assets.
The war in Ukraine has given us our answer.
Yes: Bitcoin is very much the embodiment of a true safe-haven asset. Period. No two ways about it.
Amid life-changing upheaval in Ukraine, Ukrainian citizens and the government itself are relying on bitcoin and other crypto to keep on fighting for another day. Reports this week show that Ukrainians have been buying record amounts of bitcoin and Tether (a stablecoin that tracks the U.S. dollar) as their economy falls apart, and as they lose access to traditional banking and salaries.
In Russia, meanwhile, Western sanctions have all but collapsed the banking system. Russians have limited access to their bank accounts. Some have no access. The Russian government is talking about a “bank holiday” to stop money from flying out of the banking system.
In turn, average Russian citizens are responding by turning to bitcoin. They’re paying as much as $20,000 over bitcoin’s market rate just to own the cryptocurrency. They’d rather have their wealth accessible in an online wallet and out of government reach, rather than keep it within a faltering banking system they cannot access.
I see this in my own family.
My Ukrainian/Russian wife has a bank account in Russia that she now cannot access. We hit the ATM here in Prague earlier this week and her card no longer works.
I have an account at the Czech division of a leading Russian bank. I opened the account so I’d have easy access to money when I would visit my wife—then my girlfriend—in Russia. Even though it’s a Czech-registered bank, its Russian parentage means that my local Czech-based ATM card doesn’t work now. I can no longer withdraw cash.
Thankfully, I only had a few hundred dollars in that particular account. But my wife knows several Russian families here in Prague who use that bank for direct deposit of their Czech salaries…and now they can no longer access their money.
They’re stressed and worried. They have bills to pay. Rent. Food. Utilities.
I can only imagine just how freaked out they are.
One of the Russian moms at the school my step-son attends asked my wife what she knew about bitcoin and how to buy it.
What’s unmistakably clear in all of this is that bitcoin has proven its mettle as a safe-haven asset under the exact conditions when we’d want a safe-have asset to perform.
This is not a knock against gold, mind you. I own gold. Silver, too. They are fantastic safe-haven assets as well. So, too, is the Swiss franc, which parenthetically comprises 75% of the cash in my multi-six-figure retirement account.
They are not, however, safe-haven assets in the immediacy of a crisis.
By that I mean that in the midst of a true crisis, in the early days when the normal plumbing of life is totally disrupted as banks close and ATMs run dry, no one is spending gold or silver. Few, if any, have access to Swiss francs or the means to convert them into the local currency.
It’s all online. So long as you can power your computer or smartphone and connect to the internet, you have access to your bitcoin and any other crypto. Moreover, you can move your crypto around to pay for things you need to pay for because merchants are increasingly accepting it.
What if electricity goes out?
Well, all you need is access to some kind of generator powered by gasoline, natural gas, solar, wind, hand-crank, waterwheel, whatever.
Elon Musk’s Starlink company sent a truckload of small satellite-dish receivers into Ukraine that are essentially plug-n-play. They auto-connect to any of 2,000 satellites circling the Earth and, boom, an internet connection. (To be fair, the system is shaky at present, but service quality should improve in time.)
But what about value?
What if bitcoin sinks, as it did in the early hours of Russia’s invasion of Ukraine?
A safe-haven asset is not about nominal value. It’s about financial access, freedom, security, and peace of mind.
European Jews fleeing the horrors of Nazi Germany didn’t care about the value of the diamonds, jewels, and precious metals they sewed into garments. They simply cared that in a moment of life-changing upheaval, they had something of value they could convert into some amount of money wherever they landed so that they could survive somewhere new until they were able to sort out their life.
The exact same mentality is at play with bitcoin specifically and crypto in general. It’s exactly why average Russians are paying way more than market price for bitcoin. They don’t care about value—they care about having access to money in some fashion.
The only fact I care at all about in that moment is that I have access to financial resources to afford whatever it is that I need to afford.
Plus, the reality is that during a crisis, a true safe-haven asset will rise in value…which is why we’ve seen bitcoin’s value jump more than 13% over the past week, even as the stock market falters.
Bitcoin has proven once and for all that the naysayers were wrong all along.
And the war in Ukraine has proven that the savviest investors and savers need to own some exposure to bitcoin as a safe-haven asset in their own portfolios. No country—not even the U.S. —is immune to a crisis that upends banking and access to cash.