Is bitcoin a safe asset? David Andolfatto, vice president of the Federal Reserve Bank of St. Louis, acknowledges in his blog, “MacroMania,” that bitcoin can be volatile over a short time span. But when people speak about safe assets, it’s not the same as providing a stable rate of return.
Andolfatto, in considering what makes an asset truly safe, thinks bitcoin does have some important safety properties to consider, either for personal investing or policymaking.
What’s A Safe Asset?
A safe asset is one people go to during uncertain economic times. In normal times, a safe asset is one that people hold despite a low return rate, possibly due to its use as a hedge, or liquidity characteristics.
Many view U.S. Treasuries (UST) and U.S. dollars as safe since they are fairly risk-free in their nominal return rate. A USD gives a zero nominal interest rate. A UST also gives a zero nominal interest rate along with full principal payment upon maturity.
Andolfatto points out that there’s more to thinking about a security’s