Are Bitcoin and Gold the Safest Assets?
Bitcoin and gold are both sometimes referred to as safe haven assets. BTC has even been called the new gold, but is this true? A new study has compared the two to see what similarities can be found.
Details of the Research
This study was carried out by researchers from the University of Patras and the SSEC Business School. They produced a paper called Is Bitcoin the New Digital Gold? Evidence From Extreme Price Movements In Financial Markets. It was written by Konstantinos Gkillas and François Longin.
To understand this subject, they looked at the possible benefits of holding Bitcoin during a period of economic upheaval. The current uncertainty over the global trade wars and tensions in the Middle East is a good example of when gold is traditionally sought after.
BTC was tested during extremely volatile market conditions, using the multivariate extreme value theory. As well as gold, the Swiss Franc and US Treasury bonds are regarded as safe haven assets when equities become too risky. Can Bitcoin be classed in the same category?
What They Discovered
The first important piece of information here backs up studies from the past. It shows that the correlation of extreme returns goes up when the stock market crashes and when it is booming.
They then showed that Bitcoin is a solid bet in times of economic uncertainty. This is because it provides “sought-after benefits of diversification during turbulent times”. Their testing brought back a similar result for gold as it did for BTC.
Another interesting result was the “low extreme correlation between bitcoin and gold”. This suggests that both assets can be used at the same time when the markets are in turmoil. We have seen in the pasyt how Bitcoin returns have beaten gold.
Other Thoughts on Bitcoin and Gold
Not everyone is convinced by the link between Bitcoin and gold. For a start, the way that gold can still be used as a safe haven asset leads some analysts to question why an alternative is even needed.
Another factor to bear in mind is that gold is a purely physical asset. Part of its appeal as a safe haven asset is that it works even if the entire planet’s infrastructure collapses. On the other hand, you need the internet to be working for BTC to be useful.
In summary, a relationship between Bitcoin and gold is now clearly established. They have a lot in common and can both be considered as diverse safe havens when stock markets suffer turbulent times. However, the debate over exactly how useful BTC is in times of crisis seems set to continue.