This notion that Bitcoin is digital gold continues not to hold up when looking at how it behaves in “risk-off” environments. As much as I like the fundamental premise of it being the people’s currency, decentralized and at arms-length from government control, the fact is that it acts more as a speculative asset than any type of store of value. Maybe that will change, but for the moment, that narrative is secondary to Bitcoin being a speculation.
The chart below shows Bitcoin in blue, Nasdaq 100 in red, and Gold in yellow. Visually, you can see that Bitcoin seems to move more in line with the Nasdaq than with Gold. On the bottom of the chart, we look at 100-day correlations. The red boxes represent periods of negative correlation. Over the last 5 years, we can see there have been more of these negatively correlated periods with Gold than with the Nasdaq.
Conclusion: Bitcoin is not an asset one would use to minimize portfolio risk. Alpha generation, maybe. Risk reduction, no. Additionally, the number of people who are in Bitcoin thinking they are hedging against a blowup in financial markets is not insignificant. This could cause some turmoil throughout markets if and when they find out they aren’t in fact as protected as they thought.
Below is the price of Bitcoin in blue compared to 200-day momentum in grey. Momentum is fading and is fairly close to breaking under support. Something to watch.
Important Disclosures
This blog is provided for informational purposes and is not to be considered investment advice or a solicitation to buy or sell securities. Cadence Wealth Management, LLC, a registered investment advisor, may only provide advice after entering into an advisory agreement and obtaining all relevant information from a client. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
Past performance is not indicative of future results. It is not possible to invest directly in an index. Index performance does not reflect charges and expenses and is not based on actual advisory client assets. Index performance does include the reinvestment of dividends and other distributions
The views expressed in the referenced materials are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
