2018 might be the year we find out.
There’s an old saying on Wall Street that when times are good, you should focus on the return on your capital, but when times are bad, you should only care about the return of your capital. A flight to quality asset then is anything that tends to go up in times of turmoil because investors perceive it as a safe place to park their money.
Upon first glance, Bitcoin is a terrible candidate for such a role. It’s volatile, hard to understand, and difficult to access given how it exists outside of the traditional banking system.
So why would anyone consider it desirable during a crisis? Because it exists outside of the traditional banking system.
One of the first parabolic up-moves for the cryptocoin began with a banking crisis in Cyprus. Back in 2013, while still reeling from the aftermath of the financial crisis, the tiny Mediterranean country found its banking system teetering, and reached out to the bigger European powers for help.
But instead of offering them a bailout, the EU came back with something more along the lines of a bail-in, as it demanded that Cypriot banks confiscate a portion of their customers deposits to shore up their balance sheets. To add insult to injury, they also imposed capital controls that prevented people from moving their money to a safer jurisdiction.
As you can see on the chart below, a decentralized form of money like Bitcoin, despite its drawbacks, can suddenly look very appealing when the centralized system starts to falter.