Bitcoin Vs Gold: A Tale of Two Assets
In the face of geopolitical turmoil, such as the recent ballistic missile attack by Iran on Israel, investors often turn to safe-haven assets. Two such assets that are often touted as safe havens are gold and Bitcoin. However, their performance during times of geopolitical crisis tells a different story.
A comparison of the price action of gold and Bitcoin during the missile attack reveals contrasting behaviors. While gold surged, Bitcoin plummeted. This behavior supports the argument that Bitcoin behaves more like a risk asset than a safe haven. If Bitcoin were truly the "digital gold", it would be expected to rise during periods of geopolitical turmoil, not decline.
Comparative Analysis: Bitcoin and S&P 500
Much like Bitcoin, the S&P 500 also dropped in response to the news of the missile attack. This pattern was not unique to this event. Similar patterns were observed during the Iranian strikes against Israel in April 2024 and the October 7th, 2023 attack on Israel.
Bitcoin and the Nasdaq 100 Index
Bitcoin's price movement closely tracks the tech-heavy Nasdaq 100 Index. Over the past five years, the correlation coefficient between Bitcoin and the Nasdaq 100 has been 0.88 (out of 1), indicating a strong relationship and closely aligned movements. This suggests that Bitcoin behaves more like a speculative risk asset, akin to hot tech stocks, rather than a safe-haven asset.
The Correlation Problem
The issue with Bitcoin's high correlation with the Nasdaq 100 is that U.S. tech stocks are currently in a bubble, fueled by unprecedented stimulus from the Federal Reserve. When this bubble bursts, Bitcoin is likely to be pulled down with it due to their close correlation. Indicators such as the highly inflated price-to-sales ratio of the Nasdaq highlight the bubble.
Another clear sign of the bubble in U.S. technology stocks is their inflated weighting in the S&P 500, which now surpasses even the peak levels seen during the 1999 dot-com bubble.
Bitcoin: A Risk Asset
The aim of this analysis is not to prove that U.S. technology stocks are in a bubble, but rather to highlight the reality that Bitcoin should not be labeled as "digital gold" if it doesn't behave like a safe-haven asset. Bitcoin is a risk asset, better suited for "good times" rather than times of crisis.
The strong correlation between Bitcoin and technology stocks is likely due to the significant overlap in investors. This group, who are overly confident in modern technology, will likely be caught off guard by the bursting of the tech stock bubble. When they are forced to liquidate their tech stock holdings and lose their jobs in the tech field, it will likely drive Bitcoin's price down as well.
Bitcoin's Future
This is not to say that Bitcoin couldn't experience a wild surge at some point, reaching $100,000 or much higher. However, it doesn't have the reliability of gold, which has a proven track record as a store of value over thousands of years.
Bottom Line
Despite being dubbed "digital gold," Bitcoin consistently behaves more like a speculative asset, particularly in times of geopolitical crises. Its correlation with the Nasdaq 100 Index and its susceptibility to the same forces driving tech stocks reveal that Bitcoin lacks the stability that defines true safe-haven assets like gold. As the bubble in tech stocks continues to inflate, Bitcoin’s fate is closely intertwined with theirs, making it vulnerable to sharp downturns when the bubble bursts. Investors should consider this reality before treating Bitcoin as a dependable hedge in times of uncertainty. What are your thoughts on this matter? Feel free to share this article with your friends and sign up for the Daily Briefing, which is everyday at 6pm.
Bitcoin Vs Gold: A Tale of Two Assets
In the face of geopolitical turmoil, such as the recent ballistic missile attack by Iran on Israel, investors often turn to safe-haven assets. Two such assets that are often touted as safe havens are gold and Bitcoin. However, their performance during times of geopolitical crisis tells a different story.
A comparison of the price action of gold and Bitcoin during the missile attack reveals contrasting behaviors. While gold surged, Bitcoin plummeted. This behavior supports the argument that Bitcoin behaves more like a risk asset than a safe haven. If Bitcoin were truly the "digital gold", it would be expected to rise during periods of geopolitical turmoil, not decline.
Comparative Analysis: Bitcoin and S&P 500
Much like Bitcoin, the S&P 500 also dropped in response to the news of the missile attack. This pattern was not unique to this event. Similar patterns were observed during the Iranian strikes against Israel in April 2024 and the October 7th, 2023 attack on Israel.
Bitcoin and the Nasdaq 100 Index
Bitcoin's price movement closely tracks the tech-heavy Nasdaq 100 Index. Over the past five years, the correlation coefficient between Bitcoin and the Nasdaq 100 has been 0.88 (out of 1), indicating a strong relationship and closely aligned movements. This suggests that Bitcoin behaves more like a speculative risk asset, akin to hot tech stocks, rather than a safe-haven asset.
The Correlation Problem
The issue with Bitcoin's high correlation with the Nasdaq 100 is that U.S. tech stocks are currently in a bubble, fueled by unprecedented stimulus from the Federal Reserve. When this bubble bursts, Bitcoin is likely to be pulled down with it due to their close correlation. Indicators such as the highly inflated price-to-sales ratio of the Nasdaq highlight the bubble.
Another clear sign of the bubble in U.S. technology stocks is their inflated weighting in the S&P 500, which now surpasses even the peak levels seen during the 1999 dot-com bubble.
Bitcoin: A Risk Asset
The aim of this analysis is not to prove that U.S. technology stocks are in a bubble, but rather to highlight the reality that Bitcoin should not be labeled as "digital gold" if it doesn't behave like a safe-haven asset. Bitcoin is a risk asset, better suited for "good times" rather than times of crisis.
The strong correlation between Bitcoin and technology stocks is likely due to the significant overlap in investors. This group, who are overly confident in modern technology, will likely be caught off guard by the bursting of the tech stock bubble. When they are forced to liquidate their tech stock holdings and lose their jobs in the tech field, it will likely drive Bitcoin's price down as well.
Bitcoin's Future
This is not to say that Bitcoin couldn't experience a wild surge at some point, reaching $100,000 or much higher. However, it doesn't have the reliability of gold, which has a proven track record as a store of value over thousands of years.
Bottom Line
Despite being dubbed "digital gold," Bitcoin consistently behaves more like a speculative asset, particularly in times of geopolitical crises. Its correlation with the Nasdaq 100 Index and its susceptibility to the same forces driving tech stocks reveal that Bitcoin lacks the stability that defines true safe-haven assets like gold. As the bubble in tech stocks continues to inflate, Bitcoin’s fate is closely intertwined with theirs, making it vulnerable to sharp downturns when the bubble bursts. Investors should consider this reality before treating Bitcoin as a dependable hedge in times of uncertainty. What are your thoughts on this matter? Feel free to share this article with your friends and sign up for the Daily Briefing, which is everyday at 6pm.
