tastylive logo
uploaded image
Image generated with Dall-e 3

Bitcoin vs. Bonds

By:Tom Preston

Which provides a better safe haven in troubled economic times?


Fear is one of our great motivators. Since the earliest days of humanity we’ve taken action when we’re scared, running from that mean old bear back to the safety of our cave. Today, we run away from the mean old bear in the market and put our money into a “safe haven.” That’s an investment less risky than a tumultuous stock market and one that might even increase in value over time. The usual safe havens include gold, cash and government bonds.

For the sake of argument, let’s set aside the question of whether or not putting money into a safe haven is a smart thing to do. In practice, investors buy safe havens as a hedge. Traders, on the other hand, attempt to get in ahead of the investors and buy the products not as a safe haven but as speculation when news comes out that could spook investors. That can exacerbate the short-term price changes in precious metals and bonds. 

 

In particular, US Treasury bonds seem like a natural choice for a risk-averse investor. They are relatively low risk (about ½ the volatility of equity indexes) and backed by the full faith and credit of the United States government. When investors are scared, they often put money into US bonds. 

 

When Israel went kinetic with Iran last week, Americans woke up to the news on their phones. But the market was already way ahead of them. Stocks were down, and gold was up. That’s not surprising when bombs drop and missiles fly. 

 

But a funny thing happened on the way to the chaos. 

 

While the stocks were falling, US bonds were falling, too. And one of the most volatile assets out there was rallying – bitcoin. Could bitcoin be a safe haven? 

 

When it comes to educating investors, any kitchen-table financial advisor can define bonds. But even active crypto traders can have trouble understanding bitcoin. So, is bitcoin a real safe-haven or just a speculative tool? And does it matter? 

 

Put simply, bitcoin is a currency. Its transactions are tracked on a blockchain ledger and don’t rely on banks or government treasuries to provide security. Bitcoin is “mined” by finding the next block in the blockchain. That’s what those acres of supercomputers in the news are doing. The computational work they perform maintains the blockchain and makes it more secure, and the reward for doing that work is a bitcoin. The important point about the blockchain is that it is decentralized. There is no one person, company or country that owns or can shut down the blockchain. By extension, bitcoin is decentralized, too.  

 

The supply of Bitcoins is capped at 21 million coins. When demand is high to execute transactions in a currency, like the US dollar, Japanese yen or European euro, the price of that currency can increase. So, when the demand is high to execute transactions in bitcoin – to pay for something in bitcoin or receive funds in bitcoin – because of its security and decentralization, the price of bitcoin can go up, too. 

 

So, with a growing number of people buying bitcoin as a long-term investment or as a short-term trade, it’s not surprising it could begin to be considered a safe haven. Sure, bitcoin is volatile. But considering the downgrade in US Treasuries’ credit rating and central banks reducing their holdings in them, it could become tougher to see bonds as a safe haven. That could be one reason why Treasury bond prices have been lower to flat even as stocks have been more volatile. 

 

So, put bitcoin on your watchlist, and check out what it’s doing when you wake up. It might give you a hint about what’s happening in the world. 


Tom Preston, tastylive chief market strategist, is responsible for the brokerage’s trading strategy, client-facing trading software and futures trading products. He contributes to Luckbox magazine and writes tastylive's Cherry Bomb newsletter. He's been trading options since 1992.  


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.  Options, futures, and futures options are not suitable for all investors.  Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.

tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.

tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.

tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.

© copyright 2013 - 2025 tastylive, Inc. All Rights Reserved.  Applicable portions of the Terms of Use on tastylive.com apply.  Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.