Hello, friends. Hope you all had a great week! Please disregard the prior post sent. It seems only a portion of the post was saved while writing. My sincere apologies.
For this post I wanted to write about a topic I have been discussing with a friend over the last few days. He contends that Bitcoin is the safe haven asset of the future, while my work indicates that Bitcoin appears to be more like a risk-on asset on steroids.
When I think of safe havens, I typically think of portfolio hedges. Where do investors flee to when things go wrong? U.S. Treasuries, the U.S. Dollar, maybe gold (sometimes) or the Japanese yen.
Here’s a chart showing Bitcoin and the S&P 500 over the trailing 5-year period. The beginning of “risk-off” periods are shown with red arrows. While the correlation isn’t perfect, we can see that the two typically selloff together in tandem. Not exactly a safe haven during periods of market volatility.
I am open to the fact that this relationship can change in the future, but I will wait for confirmation.
My friend is not alone in this contention and it continues to become a more consensus viewpoint. In fact, Bitcoin is often referred to as, “digital gold.”
Here’s a screenshot of top stories from a simple Google search:
Is this a fair analogy? Digital gold. I will spare us the theoretical underpinnings of the argument (store of value, monetary policy mechanisms, etc.) and just focus on the charts. To an extent, I think that’s all we need to answer the question.
When I originally started writing this post I was planning on only comparing gold and Bitcoin, side-by-side. Fortunately for me, I strolled past an interesting tweet from @alphacharts while I was boiling water to make some ramen.
Digital copper? Hmmm. 🤔
I recreated my own longer term chart below comparing Bitcoin ($BTCUSD), gold futures (GC1!) and copper futures (HG1!). Which two assets look the most similar? Top and middle? Or the top and bottom? Seems like the latter pair have a much stronger correlation to me.
So, what’s the takeaway? Bitcoin and gold don’t seem to have much of a strong correlation. But Bitcoin and copper? Surprisingly nice! At least over recent history. How do we tie this to the original point — is Bitcoin a safe haven asset?
This is a short analysis but there’s two simple takeaways:
Periods of stock market volatility often coincide with Bitcoin volatility.
Bitcoin appears to more closely track copper, rather than gold.
If Bitcoin is more like digital copper than digital gold then shouldn’t we lean towards considering it to be a risk-asset? As I have noted in prior posts, Dr. Copper is often viewed as a reliable proxy to gauge the overall health of the global economy due its broad use as an input to various industrial applications. Simply put, rising copper prices implies strong demand and a strong economic backdrop. Declining prices imply the opposite.
None of this is to say that Bitcoin isn’t a phenomenal investment opportunity. It sure has been. So has copper! Copper futures (HG1!) have doubled from the March 2020 pandemic lows and reached the $4 target we called for in Monday’s post.
Maybe in the future we will be viewing Bitcoin as a broad indicator of overall risk appetite in the global economy. Dr. Bitcoin? Maybe not. What do you think?
Have a great weekend all!