Report: Bitcoin is 'Not a Save Haven' or Substitute for Gold

The World Gold Council, a market development organization for the gold industry, recently published an investment update report in which it noted that bitcoin (BTC) and other cryptocurrencies are “not a safe-haven.”

The World Gold Council’s report mentioned that in Q4 2018, the “global stock markets experienced their worst quarter” since the Wall Street financial crisis in 2008-9. It was during this period that “cryptocurrencies had a prime opportunity to demonstrate qualities associated with safe havens”, the investment update stated.

However, the World Gold Council pointed out that the bitcoin price dropped sharply and it “behaved like [other] risky assets” while “gold rallied.” According to the World Gold Council, cryptoassets may not be considered a “substitute for gold” because gold “enjoys a more liquid and established market” and the precious metal is far “less volatile” compared to bitcoin.

Cryptocurrencies Unable To Serve As "A Liquid, Safe Haven Hedge"

Gold is an asset that has established its value over a thousand year period and it has “a well understood role in an investment portfolio”, the Gold Council’s report noted. The investment update explained that market research shows that traditional assets have “minimal overlap with cryptocurrencies on many sources of demand and supply.”

As the US stock market crashed towards the end of 2018, the “perceived ability” of digital assets to serve as “a liquid, safe haven hedge” and a store-of-value (SoV) during times of political and economic uncertainty “did not hold”, the report stated. The Gold Council also wrote in its update that bitcoin, the flagship cryptocurrency, exhibited price movements that are similar to “technology stocks” as the BTC price dropped by 55% during Q4 2018.

Significantly, the Nasdaq composite fell only by 19% which indicates that bitcoin was one of the worst performing asset classes during “times of market stress”, the report mentioned. Many analysts have said that bitcoin is like “digital gold”, however the World Gold Council believes the cryptocurrency is an unreliable form of investment.

Pompliano Claims Bitcoin Is A "Non-Correlated Asset"

Although Anthony Pompliano, the founder of Morgan Creek Digital Assets, and other crypto analysts have also said that bitcoin is a “non-correlated asset”, the Gold Council found that the traditional Nasdaq composite was “heavily correlated” (0.69) with the price of bitcoin. The correlation between the world’s most dominant cryptocurrency and the traditional financial market became stronger as stock prices fell sharply in Q4 2018. Meanwhile, the gold bullion “rallied 9.4%” during the same time period and was notably “strongly inversely correlated” with the Nasdaq at -0.73.

Pompliano, who recommends investing only 1-2% of an investment portfolio into cryptoassets, had mentioned (in late December 2018) that the correlation between bitcoin and the S&P 500 In the past 6 months was “near zero.” However, Pompliano did not provide nor reference any financial data to support his claims.