Is Bitcoin a risky asset or a safe-haven asset? This article discusses the investment attributes of Bitcoin by examining the price fluctuations of gold, US stocks, and Bitcoin during times of war.
Table of Contents:
Risk Assets and Safe-Haven Assets
Systematic Risk and Non-Systematic Risk
Bitcoin, Gold, and US Stock Performance During War
February 24, 2022: The Start of the Russia-Ukraine War
October 7, 2023: Israel and the Hamas Militant Group Conflict
April 12-14, 2024: Imminent War Between Iran and Israel
Female Stock Guru: Bitcoin is Both a Risk Asset and a Safe-Haven Asset
Since its proposal by Satoshi Nakamoto in 2008, Bitcoin has gradually been recognized by the market as an emerging risk investment target, and even as a potential “digital gold” and a new generation of safe-haven assets.
However, the question of whether Bitcoin has hedging capabilities has been a topic of debate in the market. In the following comparison of the definitions of risk assets and safe-haven assets, as well as the price trends of gold, S&P 500, and Bitcoin during three recent regional conflicts (Russia-Ukraine War, Israel-Hamas Conflict, Iran-Israel Conflict), we will discuss whether Bitcoin truly has hedging properties.
Risk Assets and Safe-Haven Assets
Risk assets refer to investment targets with uncertain future returns and high price volatility, which require investors to bear significant risks while pursuing high returns. The most representative risk asset is stocks, and others include funds, futures, etc.
Safe-haven assets, on the other hand, are assets that are relatively stable in terms of returns and have lower volatility or certain value preservation capabilities. Gold is globally recognized as a safe-haven asset, and others include US Treasury bonds, real estate, etc.
Systematic Risk and Non-Systematic Risk
When making any investment, we often hear the phrase “investments involve risks, and caution is required when entering the market.” In investments, risks can be categorized into systematic risk and non-systematic risk.
Non-systematic risk is easy to understand and usually refers to individual risks associated with a specific investment target. For example, the operational status of a listed company or changes in management personnel (such as the internal power struggle at OpenAI, or Sam Altman being temporarily removed from the board of directors), or the theft of a certain DeFi contract. These risks are not sufficient to pose a threat to the entire financial market or financial system.
Systematic risk, on the other hand, is much more formidable and refers to risks inherent in the market itself. Once a so-called “black swan” event occurs, it may cause turbulence in the global financial market. Examples include the 2008 financial crisis, the outbreak of the COVID-19 virus in 2020, the Russia-Ukraine war, and the Israel-Palestine conflict.
The main role of safe-haven assets is to cope with these possible systematic risks because when the entire financial market experiences volatility, safe-haven assets have the ability to preserve value to a certain extent, and may even show independent upward trends, thereby hedging asset losses.
Bitcoin, Gold, and US Stock Performance During War
In recent years, in addition to the COVID-19 virus, major events that have caused instability in the global financial system include frequent wars. The price trends of Bitcoin, gold, and US stocks during the Russia-Ukraine war in 2022, the Israel-Hamas conflict in 2023, and the Iran-Israel conflict in 2024 are compared below:
Bitcoin:
On the day of the outbreak, Bitcoin experienced significant volatility and broke through $40,000 a few days later, but then rapidly declined from April to July.
Gold:
Gold experienced an upward trend and remained above $1,900 for the next two months, reaching $2,068 in March. However, it also experienced oscillations and declines from April to July, similar to Bitcoin.
S&P 500:
After the start of the war, there was a brief upward trend, but from April to mid-June, it continued to decline.
Summary: All three experienced short-term increases followed by simultaneous declines.
Bitcoin:
Bitcoin experienced a short-term decline, but starting from mid-October, it continuously increased for seven months.
Gold:
Gold continued to oscillate and rise after the war, but its increase was not as strong as Bitcoin.
S&P 500:
It declined after the war started, but rebounded at the end of October and has been continuously rising since then.
Summary: The upward trends of the three assets were similar, but the magnitudes of the increases were different.
Iran-Israel War Imminent:
Bitcoin: Bitcoin plummeted 15% in two days, briefly dropping to $60,000, and has slightly rebounded this week, currently at $62,715 at the time of writing.
Gold: Gold initially rose and then fell, but it has rebounded to around $2,391.
S&P 500: It has been continuously declining since April 15.
Summary: Although gold also experienced a brief decline this time, the decline was not as severe, and the rebound was stronger. The declines of Bitcoin and S&P 500 were more significant.
Overall, if you dislike volatility, gold has relatively smaller short-term fluctuations and a higher preservation rate. However, if you seek investment benefits, Bitcoin is a better choice, but it requires the ability to withstand higher volatility.
Female Stock Guru: Bitcoin is Both a Risk Asset and a Safe-Haven Asset
Regarding the investment attributes of Bitcoin, Cathie Wood, founder of Ark Invest and known as the female stock guru, has also stated in the past that Bitcoin is not only a risk asset but also a safe-haven asset. The following figure shows the comparison of the trends between BTC and the Nasdaq 3x Index, illustrating their strong correlation.
Additionally, Anthony Scaramucci, founder of SkyBridge Capital, also publicly stated yesterday (17th):
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