The New Safe-Haven Asset: “Digital Gold”
Wed Aug 16 2017
Lucy Harlow (3600 articles)

The New Safe-Haven Asset: “Digital Gold”

Gold has long been heralded as a safe haven for investors.

When stocks get hammered in a crash, gold generally rises or trades flat.

And though investors can now buy inflation-protected Treasuries here in the United States, gold is also frequently used as a hedge against inflation.

But an unlikely contender has risen up through the ranks to fight against stock shocks: cryptocurrencies.

Let me explain…

As you may know, the stock market has been on a tear since Donald Trump won the presidential election last year.

And so far, aside from last week’s fall, the S&P 500 has been rocked by a one-day drop of more than 1% just three times in 2017.

In each of those “shocks,” the price of gold saw an uptick.

But here’s the kicker…

Bitcoin rose radically higher. (Other cryptocurrencies are seeing even better results.)
A Shocking Revelation

The first shock hit on March 21, wherein the S&P fell 1.2%. Gold notched a gain of 0.9% that day, while bBitcoin rose 6.3%.

The second shock knocked 1.8% off the S&P on May 17. Bitcoin spiked 6%, more than triple the rise of gold on the day (1.9%).

And last Thursday, large-cap stocks dropped 1.4%.

Gold gained 0.7%, while Bitcoin rose 1.2% — nearly twice the move of the precious metal.

In fact, Bitcoin soared 28% last week, during one of the worst weeks for stocks of the year, in which the S&P 500 dropped 1.4%.

How did gold fare in the face of the stock pressure? A mere 2.5% gain — less than a 10th of Bitcoin’s surge.

Of course, Bitcoin hasn’t undergone a true “safe haven” test against a stock market correction (a drop of 10% or more) or even a bear market.

And there’s no question that the cryptocurrency is more volatile than gold…

Over the last 12 months, Bitcoin has made an average upward daily move of 0.5%, with a standard deviation of 3.6%.

Gold, on the other hand, boasts a 0.01% decline on average but a standard deviation of just 0.69%.

The larger an asset’s standard deviation, the more “risky” it is.

But if the uptrend in price during stock market dips holds up, Bitcoin is making a strong case for inclusion as a safe-haven asset.

One that, used as a hedge against stocks, could line your pocket with far greater profits than gold.

On the hunt,

 

 

Lucy Harlow

Lucy Harlow

Lucy Harlow is a senior Correspondent who has been reporting about Commodities, Currencies, Bonds etc across the globe for last 10 years. She reports from New York and tracks daily movement of various indices across the Globe

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