Under current market conditions, safe haven assets are few and far between and in recent years, gold has demonstrated that it may be behaving more of a hedge as opposed to an outright safe haven asset.
In view of this trend, the comparison of Bitcoin to gold is like trying to categorise the type of animal a Chimera is – it is an exercise in futility.
Bitcoin returns have an asymmetric response to market shocks, which is of the same direction than precious metals, but these price increases lead to an increase in volatility. Considering the extreme price increases observed for Bitcoin, this finding is not surprising.
The Spearman Correlation Coefficient provides evidence that Bitcoin behaves completely different from gold, particularly in times of market distress. While there is sufficient evidence to confirm a “flight-to-quality” property for gold, Bitcoin shows a positive coupling effect and declines when markets are declining in shock-like situations, as can be observed in 2015, 2016 and 2018.
Coinciding with a massive surge in equity markets in 2019, Bitcoin also demonstrated a positive correlation with the S&P500 at a time when its correlation with gold trended negative, suggesting that Bitcoin, for now at least, is no hedge against equity investments.
But given that the sample data did not include a prolonged period of economic malaise and the relatively youthful and unsophisticated nature of cryptocurrency markets, it may be premature to rule out Bitcoin’s “gold-like” properties.
For now, based on the available data, Bitcoin, as an asset, does not resemble any other conventional asset from an econometric perspective.
In the short to medium term at least, Bitcoin and cryptocurrencies in general, will remain highly volatile with potentially large drops in price, as investors will continue to take profit at the peak of price movement. But unlike established asset classes, regulatory classification and oversight of Bitcoin and other cryptocurrencies will have an outsize influence on investor appetite for these nascent assets.
To liken Bitcoin to gold at this juncture at least, is more alchemy than chemistry.