Safe-Haven Assets: Coronavirus Market Crash Make Investors Turn to Gold and Bitcoin
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hat started as a health crisis, the coronavirus pandemic has caused global economic and financial turmoil rather quickly, on a scale that’s not been seen during any previous infec ous disease outbreak, including the Spanish Flu back in 1918. Closed economies, prolonged lockdowns, mass unemployment, disrupted international trade — it’s no wonder that stock markets crashed, leaving everyone guessing and worrying what’s next for the global economy. Seeking for some certainty, since mid-March, when the first wave of lockdowns began, people have been turning to the so-called “safe-haven assets“. To be more specific, during mes of global economic crisis, investors tradi onally look to secure their holdings in precious metals (gold and silver), currencies (US dollar and Swiss franc), and non-vola le assets. Today, one more safe-haven asset has joined the list: the bitcoin. Both bitcoin and gold have risen sharply throughout 2020, mostly
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driven by relentless fiat money printing by governments and central banks, keen to keep their economies afloat in the wake of the coronavirus pandemic. August 2020 started interes ngly, as on the very last day of July bitcoin rallied to its 2020 high of $11,392. And that is not all: as the bitcoin rallied up, its correlaon with gold also increased, as gold broke through $1,900, recording a new high. According to data from Kraken, a US-based cryptocurrency exchange, the increase in correla on represents a trend shi as the relaonship between the two had previously been falling. Explaining the current trend shift, MagnifyMoney, a leading consumer-facing media property that helps consumers understand personal finance with comparisons and perspec ve on money news, published a report, which revealed that millennials are leading the rush to buy gold and cryptocurrency stocks as the virus spreads. To be even more specific, 1 in 6 consumers have been inves ng
in gold or other precious metals over the last 3 months. Gold has a storied reputa on for being very stable and resilient, regardless of how the stock market turns, and that’s why many people, hoping to keep their money safe, invest in gold rather than stocks. What is more, millennials also hope to make money during the stock market’s rollercoaster ride, so they’ve been going digital and inves ng in bitcoin as well. Commen ng on the bitcoin and gold correla on, James Li, a research analyst at CryptoCompare, the independent global cryptocurrency market data provider, says that while previous correla ons between gold and bitcoin led to surges in the bitcoin price, the context is different this me. He noted that “Last me bitcoin had a moderate correla on with gold — around 0,5 — was towards the end of 2018. That was when a month earlier in November 2018 bitcoin suffered a 50 percent drop at the height of the bitcoin cash war and made some subsequent rebounds. Gold was recovering from a somewhat cyclical drop a couple of months earlier. The moderate correla on back then was perhaps a bit of a coincidence.” To be more specific, data analy cs firm Skew noted that this August, prices of bitcoin and gold have reached a monthly average correla on of 70 percent — an all- me high. What is more, according to a research paper from Bloomberg, called “June 2020 Edi on: Bloomberg Crypto Outlook“, the same forces supporting gold could posi vely affect bitcoin, resul ng in bitcoin’s upsurge. Bloomberg researchers noted that “Increasing companionship with gold is a bitcoin-price tailwind, in our view. At the highest-for-longest 52-week correla on and beta ever versus the metal, the first-born crypto should con nue to advance for reasons similar to gold, fueled by unprecedented global central-bank easing.” Interes ngly, since March, bitcoin’s gains have outstripped any other major asset and risen 4 mes faster than the Dow Jones Industrial Average. Therefore, Wall Street veterans and experts have their own opinions on this one.
