A Tale of Three Assets in Uncertain Times
We live in uncertain times, that much is true. After dealing with the turmoil of COVID for the last two years, the addition of war has thrown an additional measure of volatility into our lives, and into the markets.
So how have stocks, gold and Bitcoin behaved?
With the global markets in disarray due to conflict and sanctions, it's no surprise that stocks are down, with the S&P having lost 6.5% since the beginning of the year. Tech stocks have taken an even bigger hit, with the Vanguard Information Technology Index Fund down 13% year-to-date.
Meanwhile, Gold is up 7% after hitting its all-time high earlier this year. Investors are flocking to the shiny metal?safe haven to escape inflation and wobbly markets.
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What about Bitcoin? On the one hand, Bitcoin is billed as 'digital gold' by holders and supporters, who see a store of value in the digital coin. On the other hand, Bitcoin can also be viewed as a risk-on asset similar to tech stocks. With a 9% drop in Bitcoin's price since the beginning of the year, it seems like investors prefer the latter.
Going a level deeper, we can check the 90-day correlation between the assets to see how closely aligned the move. A correlation score of 1 would mean that the two assets move perfectly in sync, while a score of -1 would mean that the two assets move in completely opposite directions. Meanwhile, a score of 0 indicates that the two assets are uncorrelated.
Looking at the numbers, we can see that Bitcoin and stocks are weakly correlated to one another but negatively correlated (weakly) to gold.
So it looks like Bitcoin isn't a safe haven, yet. While investors are currently viewing Bitcoin as a risk-on asset similar to tech stocks, the very fact that Bitcoin is mentioned in the same breath as gold and stocks shows tremendous growth for an asset class still coming of age.