image 1326770854 Is Crypto the New Gold?

Is Crypto the New Gold?

Read Time:2 Minute

-Crypto enthusiasts often claim that digital coins and tokens are uncorrelated with equities and can provide a safe haven amid stock market crashes.
-The assumption is that cryptoassets will act like digital gold, serving as a hedge against equity risk, and help investors ride out such downturns.
-Such bold claims beg for examination, especially amid what looks like a bear market for stocks.
-So, the author explored how crypto has performed during previous crashes.
-In particular, the author isolated the major panic events over cryptos short history and studied the correlation between this new asset class and some of its more traditional peers.
-The correlation between gold and the S&P 500 came in as expected.
-Outside of major downturns, gold and the S&P 500 have just a slight positive correlation of 0.060.
-Yet, when the S&P 500 plunges, so does its average correlation with gold, which drops to 0.134.
-The takeaway is clear: Gold does offer some protection in down markets and lives up to its status as a perennial hedge.
-The same cannot be said for bitcoin or crypto in general.
-Outside of equity market downturns, bitcoin and the S&P 500 have had a slight positive correlation of 0.129.
-Amid the last five stock market contractions, however, the correlation between bitcoin and the S&P 500 jumped to 0.258.
-Indeed, in only two of the past five downturns did the correlation turn negative.
-On the other hand, true to its hedge-y reputation, gold exhibited a negative correlation with the benchmark index in four out of the last five crashes.
-But what about bitcoin and gold? How has that relationship changed during recent panics and downturns?
-In rising equity markets, bitcoin and gold have a slight positive correlation of 0.057.
-Amid stock market crashes, the correlation rises only slightly to 0.064.
-So, whatever the state of the equity markets, the correlation between gold and bitcoin is pretty close to zero.
-Based on the data, crypto certainly does not act like digital gold.
-In times of panic, the correlation between crypto and the stock market actually increases.
-So, whatever its proponents may say about its utility as a hedge against market downturns, crypto has served as more of an anti-hedge, with its correlation with the S&P 500 rising as stocks plunge.
-That said, given the lack of correlation between gold and crypto, the latter may add some diversification benefits to a portfolio.
-The overall verdict is undeniable: When it comes to hedging equity risk, bitcoin and cryptocurrencies are more fools gold than digital gold.



image 1326770854 Is Crypto the New Gold?
Is Crypto the New Gold? 3

Leave a Reply

%d bloggers like this: