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Bitcoin may be a safe haven asset, but not a reliable one

When the stock market falls, investors are often looking Bitcoin and ask: is this really a “safe haven” property?

Safe-haven assets are assets that investors can turn to to reduce risks when the traditional market is in trouble. In other words, they are assets where prices are not volatile as stocks and bonds fall.

So is Bitcoin a safe haven asset? It seems not. When the stock market was overwhelmed by COVID-19 and the Russian-Saudi oil price war, Bitcoin prices fell at the same time as stocks. It has plummeted from a high of over $ 10,000 in mid-February to just under $ 7400 at press time.

But will the latest short-term response prove that Bitcoin is not a safe haven asset? Not really. Just by looking at Bitcoin history, you can see that.

The daily Bitcoin price data from Coin Metrics is compared to the daily closing price of Dow Jones Industrial Average (DJIA), a stock index that measures the prices of 30 major US companies. DJIA is often used as a measure of the performance of the Western stock market.


Source: Coin Metrics & Wall Street Journal

As the chart above shows, if we look at the entire history of Bitcoin, the price of Bitcoin and DJIA are pretty much correlated. From 2010 to March 2020, both have a Pearson correlation coefficient above 0.84, showing a strong positive correlation. In other words, these two numbers – Bitcoin price and DJIA – tend to move in tandem. When Bitcoin price increased, DJIA also increased and vice versa.

However, if we break down the data by year, the model will not be clear. For example, in 2017 we see a strong positive correlation of 0.90. But in other years, the correlation is weaker. In 2012, 2013 and 2019 all showed a positive correlation of about 0.5, Bitcoin gradually left the traditional markets in those years. In 2011, 2015 and 2018, there were nearly 0 correlations, not many relationships between BTC and DJIA at that time.

The year 2014 showed a moderate negative correlation, which means that Bitcoin price actually had the opposite trend with DJIA in that year.


Source: Coin Metrics & Wall Street Journal

What does all this mean? Although it has been warned that good things happening in the past are unlikely to happen in the future, it seems that Bitcoin can be a safe haven from some traditional market activities, although this is Not a completely reliable way.

In general, Bitcoin has moved in many different ways, reflecting everything that happens on the vast market. But there are exceptions – though operating for a year but still not suitable for this model. Data shows that over the years, Bitcoin has sometimes been used as an effective alternative to traditional markets.

Thuy Ngan

According to Longhash

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