- Bitcoin’s past performance suggests the asset class is less like gold than stocks.
- During previous stock market corrections, bitcoin fell while gold served as an effective hedge.
- “The correlation between bitcoin and the high-growth benchmark ARKK is still around 60% year-to-date,” Fairlead’s Katie Stockton said in a Friday note.
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While bitcoin is often portrayed as an alternative to gold, its historical price action suggests it is more closely tied to stocks.
Investors have flocked to the cryptocurrency sector in a bid to gain exposure to uncorrelated returns to traditional asset classes like stocks, bonds, and precious metals, as well as protect against rising inflation.
But two charts showing relative performance amid recent stock market corrections illustrate that bitcoin is more positively correlated to stocks than some might think.
The first shows that when stocks fell almost 20% in the fourth quarter of 2018, bitcoin fell 50%, while gold traded almost 8%. Market volatility was triggered by a hawkish Federal Reserve and fears of slowing economic growth due to tariffs.
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The second fast forwards to the onset of the COVID-19 pandemic in early 2020, when bitcoin once again fell nearly 50% while stocks fell 34%. Amid the risky carnage, gold traded flat, once again proving its position as a safe-haven asset.
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Today, amid a nearly 7% decline in the S&P 500 since the start of 2022, bitcoin is down 17% while gold is flat. The data clearly indicates that for now, bitcoin is less of an inflation hedge, and more of a risky volatile asset that does well when stocks do well, and vice versa.
Technical analyst Katie Stockton of Fairlead Strategies highlighted this fact in a note on Friday.
“The correlation between bitcoin and ARKK, the high-growth benchmark, is still around 60% year-to-date, compared to around 14% for the price of gold, reminding us to classify bitcoin and altcoins as risky assets rather than safe havens,” she said. noted.
One of the reasons gold acts as a reliable safe haven amid market turmoil is that it has a history spanning thousands of years of holding some form of value. Meanwhile, bitcoin just celebrated its 13th birthday.
When it comes to evidence-based investing, investors value more data than less, and gold has the data to back up its position as a safe-haven asset, unlike bitcoin.
