So, following the significant falls in the stock market recently due to COVID-19 causing a scare and affecting the global economy. In the comparison of Bitcoin vs Gold, we see, shown in the charts below, that Bitcoin looks a lot more like a stock than gold.
Investors will always run to gold and commodities in bad times.
In tough times like we are going through now a lot of investors turn away from the volatility of stocks in favour of more stable options like gold. Having your money in something real that holds value regardless of what happens with the global economy is a very appealing option when all the prices are falling.
Gold will always have value no matter what happens in the economy.
Therefore, when the stock market sees a significant fall you see a rise in the gold price. This is also why gold is seen as a good option for hedging your portfolio against falls in the stock market. All this has a lot of people asking if Bitcoin is a good alternative to gold for safety in the uncertain times.
Let’s consider the current price of gold in the market. It has been on a steady increase for a while, starting its rise as far back as December 2019. Indicating that people were starting to hedge their bets on a fall in the stock market long before one began.
Gold Price 3 months (December/19 – March/20)
This looks like a good option when the rest of the stock market is falling, you can make a moderate profit rather than a loss just by moving your money into gold.
Now let’s compare this to the Dow Jones for the same period to get some context.
Dow Jones Price 3 months (December/19 – March/20)
As you can see between the two charts as the stock market is falling the gold price is shooting up. There is even a short correction present in both charts on the 1st-2nd of March that is the inverse of each other, with the gold price slightly trailing the stock market.
So, Bitcoin VS Gold?
Now we get to the fun part. For Bitcoin to act like gold we should see it perform in a similar way to the gold chart above. We would think that as the stock market is having a bad time that bitcoin should be jumping up as investors move their money from stocks to cryptocurrency.
Bitcoin follows the Stock Market not Gold
Bitcoin Jones Price 3 months (December/19 – March/20)
But as you can see in the chart for bitcoin in the same period, it follows the stock market and falls away over the same period. It also falls with a significant amount of velocity too approximately 20% of the value was wiped out in the space of 1 month. This is much more than the stock market over the same time period.
What we can work out from this is that investors don’t look at bitcoin as an alternative to gold. They see it as a highly volatile asset, going by the numbers more volatile than gold. So, if you are thinking of jumping out of the stock market for a while we would not recommend moving into bitcoin.
Investors look at Cryptocurrency as a volatile asset, this does not mean it will always be this way. Possibly in the future when Cryptocurrency has been embedded into the global economy in a way that it becomes more fundamental than the banking system. Then maybe we will see Bitcoin and possibly others act as a haven for money in bad times.
But as we see it now it’s not an asset that should be used this way. Bitcoin and other cryptocurrencies should be considered a volatile and risky place. Somewhere you can make a lot of money but also somewhere you can lose it a lot more easily.