The Surprising New “Safe Haven” Asset

By TradeSmith Editorial Staff

Listen to this post
After the failures of Silicon Valley Bank and Signature Bank, our friends at LikeFolio made a stunning discovery.

And with threats like a potential recession, a Fed-triggered market crash, and a Washington debt crisis all around us, it’s a discovery you may be putting to use sooner than you think.

Let’s start with the banking crisis.

The LikeFolio team found, through their proprietary social media data, a sharp uptick in mentions of bank withdrawals:

Mentions were up 82% on a year-over-year (YoY) basis, to be exact.

After such an unnerving event, this is hardly unexpected. But you might be surprised by where folks were putting those withdrawals.

They weren’t using money-market funds or U.S. Treasuries as their “flight-to-quality” target.

Now, they did turn to gold as a safe-haven asset: Buyers bid the yellow metal from $1,827 an ounce on March 1 to $1,969 by the end of the month – a 7.7% jump in just a few weeks.

But another asset – a newer one that’s still part of the “Wild West” of investing – saw an even bigger price surge during that same stretch.

We’re talking about the cryptocurrency Ethereum (ETH), which jumped 13.4% during the month of March.

That brings us back to LikeFolio and their proprietary data. Consumers who mentioned buying or considering buying Ethereum soared a stunning 284% year-over-year (YoY):

As the chart above shows, Ethereum mentions started to climb at the start of the year. But they went vertical in March – just as banks started their collapse.

This seems counterintuitive.

On the continuum of risk, bank deposits – cash – are traditionally viewed as one of the safest things around. At the other end of the spectrum, you’ve got cryptos – one of the newest financial assets and, thanks to the whipsawing volatility, one of the riskiest.

And yet, once banks began to topple, investors yanked their deposits and used the proceeds to buy Ethereum.

Talk about a turn of events.

It seems like this is a “bizarro” investing world…

Or is it?

Crypto’s Promise

The crypto industry is by no means perfect, as evidenced by its various scams and epic collapses, like when Sam Bankman-Fried’s FTX exchange “lost” $8.9 billion in customer funds.

When an establishment is being disrupted — especially the financial system, which has operated much the same way for hundreds of years and is slow to adapt to new technologies — you’re going to have a few flops.

But you’re also going to have some winners, and at its core, the underlying technology of cryptocurrencies helps provide things the banking sector does not:
  • Decentralization
  • Accessibility
  • Security
  • Transparency
As with any financial investment, you never want to invest in what you don’t understand, and you don’t want to get in over your head. Cryptos have earned a reputation for being volatile for a reason.

But when you think about the flaws in the traditional financial system — banking failures, currency manipulation, and the overprinting of money — it’s easy to understand why many folks are starting to see crypto as a hedge against “bad financial behavior” by banks and policymakers.