The Iran crisis doesn't prove that bitcoin is a safe haven asset, but ETP volumes might

Financial markets were gripped last week by news of the death of Iran general Qasem Soleimani, breathing new life into the idea that bitcoin could serve as a safe-haven asset during times of economic and political uncertainty. 

The Dow Jones Industrial Average has recovered most of its losses since news broke that the Trump administration conducted a drone strike that killed the controversial Iranian military leader, but bitcoin has outperformed broader markets along with gold and Japanese Yen.

Bitcoin has long been touted by its supporters as a haven from broader risk in the market, but the overall data picture hasn't necessarily supported that thesis.

Indeed, data from UsefulTulips.org showed that trading volumes in Iran on the peer-to-peer marketplace LocalBitcoins barely budged, even as tensions between the U.S. and Iran continue to ratchet up. There were also misconceptions at the outset that BTC prices had surged in Iran because of sky-high listings on the peer-to-peer market. But as commentators later pointed out, that perception was fueled because of differences between the Iranian government's official USD rate and the one used by the broader public. 

In actuality, the local price for bitcoin is roughly the same as the rest of the world, some variation aside, when based on the non-governmental exchange rate. 

At Exir, a cryptocurrency exchange in the country, 24-hour trading volumes doubled from 20 BTC to 40 BTC – a paltry number by most measures. The firm's CEO Ehsan Ghazi told The Block last week that he expects activity to increase, noting that Iranians likely will park their money in property, gold, and USD to fend off rocky political conditions in the country. 

Still, the available information about actual activity around bitcoin paints an imperfect picture. For one, financial institutions are barred from dealing with digital assets — limiting onramps for folks in the country. 

"I would bet that Iran is a top 5 country in terms of utility use of BTC," noted Matt Ahlborg, founder of UsefulTulips.org. "You aren't seeing it on LB for compliance reasons. Some analysis that I've done suggests that Iran has an especially large mining footprint as well."

Safe haven musings

The Block analyst Ryan Todd explored the safe haven question in August, noting that the largest cryptocurrency fails to meet most of the accepted criteria of a safe haven asset. It's volatility is one such demerit. 

"Looking at average 30-day rolling volatility, bitcoin has seen an average 12.4% annualized 30-day volatility over the last five years, and currently sits just under 20%," Todd noted at the time. "Compare that to Treasuries at ~.50%, and even the S&P 500 and gold at 2.5%, and you can see why there was a collective push-back on the notion that bitcoin offers 'safety.'"

Analysis from The Block shows that bitcoin has failed to establish a negative relationship with the broader market, including the S&P 500, currency baskets, and others. 

Look at the volumes

Still, just because bitcoin doesn't match most of the characteristics of safe haven assets doesn't mean that investors aren't flocking to the coin during times of global uncertainty, according to data provided by asset managers Grayscale and Amun. 

Grayscale, which manages over $2 billion in cryptocurrency assets, saw volumes for its flagship product increase during four key global macro events, as shown in the table below:

For four out of the five events examined, Grayscale saw its volumes soar above the trailing three month average.  Of course, external factors could have played a role in the increase. 

"I think anecdotally, we’ll see that GBTC vol goes up in relation to these events. however, it’s also important to note that it’s difficult to dissociate macro effect from other factors (for example – trade tensions in May also coincided with the first ever GBTC advertising campaign as well as NY Blockchain Week/Consensus)," noted Grayscale spokeswoman Marissa Arnold.

"Also, GBTC volumes have changed substantially a bit over time (new shares created over time, more awareness over time, etc.)," she continued.

European asset manager Amun, for instance, saw a significant volume increase following the imposition of tariffs (whereas Grayscale did not), said CEO Hany Rashwan. 

"For Trump's impeachment, there was actually a much larger spike in volume the day before his actual impeachment to 1,810 on 12/17," Rashwan said. "This might indicate that investors were anticipating the following day's news and got their trades in ahead of time."

The firm's volumes following the death of the Iranian general, on the other hand, were muted. Rashwan said that might be because it was the first trading day of the year. 

Editor's Note: This report has been updated for clarity regarding the pricing situation within Iran.