Bitcoin Is Not the New Gold

Is Bitcoin a new gold – aka. a hedge or safe heaven asset during equity downturns? Short answer – No. Again, recommended read about cryptocurrencies … :

Authors: Klein, Hien, Walther

Title: Bitcoin Is Not the New Gold: A Comparison of Volatility, Correlation, and Portfolio Performance



Cryptocurrencies such as Bitcoin are establishing themselves as an investment asset and are often named the New Gold. This study, however, shows that the two assets could barely be more different. Firstly, we analyze and compare conditional variance properties of Bitcoin and Gold as well as other assets and nd differences in their structure. Secondly, we implement a BEKK-GARCH model to estimate time-varying conditional correlations. Gold plays an important role in financial markets with flight-to-quality in times of market distress. Our results show that Bitcoin behaves as the exact opposite and it positively correlates with downward markets. Lastly, we analyze the properties of Bitcoin as portfolio component and nd no evidence for hedging capabilities. We conclude that Bitcoin and Gold feature fundamentally different properties as assets and linkages to equity markets. Our results hold for the broad cryptocurrency index CRIX. As of now, Bitcoin does not reflect any distinctive properties of Gold other than asymmetric response in variance.

Notable quotations from the academic research paper:

"Cryptocurrencies, in particular Bitcoin, have been labeled the New Gold by some media,banks, and also data providers throughout the last years. While this view might be motivated by fast and high returns in a gold rush like environment, we compare Gold and Bitcoin from an econometric perspective and focus on the economic aspects of cryptocurrencies as an investment asset. We address the question how cryptocurrencies can be classi fied based on volatility behavior and how they are correlated with already established asset classes.

The analysis in this paper is subdivided into three parts. Firstly, we start by investigating the volatility behavior of cryptocurrencies in comparison to stock indices and commodities.

Secondly, this research explores the hedge and safe haven capabilities of cryptocurrencies in comparison to Gold by means of a dynamic correlation analysis. We apply the definition of hedge, diversifi er, and safe haven given in Baur & Lucey (2010). An asset which is uncorrelated or negatively correlated with another asset is de fined as a hedge whereas a safe haven asset is uncorrelated or negatively correlated with other assets in distressed markets only. Assets which are a diversi fier are positively (on average), but not perfectly correlated to other assets.

What makes the Bitcoin – S&P 500 correlation fundamentally di fferent from the correlationsof Gold and the index is the behavior during market distress. Interestingly, correlations are steeply increasing from negative to a positive relationship while the index is in a downward movement. This indicates that Bitcoin follows the downturn, which is observable in the raw as well as smoothed correlations in Fig. 4. The same behavior holds for the Bitcoin – MSCI World correlations. While Gold prices increase in the flight-to-quality, Bitcoin prices are decreasing with the markets.

Gold - S&P 500 and Bitcoin - S&P 500 correlations

To further highlight the di fferences, Fig. 5 visualizes the smoothed correlations of Gold and Bitcoin with the S&P 500. Interestingly, the movements in correlations appear to be mirrored from 2015 on, while being negative on average. This falls into the time where Bitcoin is becoming more popular and price increases begin to accelerate. From the joint plot, it becomes clear that Bitcoin, viewed as an asset, behaves di fferently than Gold. Comparing the correlations of Gold and Bitcoin with the MSCI World, plotted in the Appendix, the mirrored movements are more emphasized and span over diff erent signs.

Concluding our correlation analysis, we find Gold to be a hedge rather than a safe haven in recent years. Bitcoin, on the other hand, behaves completely di fferent, especially from 2015 on. The cryptocurrency couples with markets during bearish environments, with correlations rapidly turning to positive values in these times. This holds true for both the S&P 500 and the MSCI World index. We also observe inverse movements of correlations of Gold and Bitcoin with these two indices. While correlations increase for Gold, Bitcoin correlations decrease to the same market and vice versa. This is a clear indication that Bitcoin and Gold have di fferent connectedness to markets.


Are you looking for more strategies to read about? Check

Do you want to see performance of trading systems we described? Check

Do you want to know more about us? Check

Follow us on:



Share onRefer to a friend

Subscribe for Newsletter

Be first to know, when we publish new content

    The Encyclopedia of Quantitative Trading Strategies

    Log in

    We boasts a total prize pool of $15,000
    Gain a Share of a Total Prize Pool of $15.000
    Gain a Share of a Total Prize Pool
    - bi-weekly research insights -
    - tips on new trading strategies -
    - notifications about offers & promos -