After a macroeconomic week, the bitcoin price began to lose momentum, dipping below $65,000 yesterday. This apparent ‘flight to safety’ by investors might be the reason behind this downturn.
What is a flight to safety, and why is it bad news for bitcoin?
Safety flight puts pressure on bitcoin prices
During periods of market stress or global uncertainty, investors often flock to relatively secure assets, such as government bonds in a ‘flight to safety.’ They seek lower-risk investments in these times, as their tolerance for risk decreases.
Currently, US government bond yields are high due to the Central Bank’s efforts to combat inflation. Meanwhile, last week saw a sharp fall in bond yields, indicating investors are aggressively purchasing bonds, driving prices up.
A typically inverse relationship exists between bitcoin and the bond market. When bond yields fall, they normally become more attractive to investors and in turn, drive up the bitcoin price. However, this trend hasn’t panned out this week. It seems investors are willing to absorb the lower returns from bonds as the perception of risk grows.”
This period is crucial for bitcoin investors as it may signal a new trend if investors continue to seek lower-risk options. Since reaching its all-time high in March, bitcoin has struggled to regain momentum, resulting in a wait-and-see mode for investors.