2020 had numerous firsts, however one in every of them was arguably the primary main and speedy market drawdown throughout Bitcoin’s existence. So how did Bitcoin carry out? Researchers have looked at the data and are not encouraged. Bitcoin fell in live performance with many different belongings. This doesn’t bode effectively for Bitcoin as a secure haven asset, at the very least not for S&P 500 buyers. After all, this doesn’t derail the funding case for Bitcoin, however does imply you shouldn’t essentially count on it to bolster your portfolio at instances of market stress. Nonetheless, there are additionally causes to suppose that the 2020 market decline had some distinctive points to it.
The Covid Drawdown
The market decline in March 2020 was in some methods comparatively distinctive. Correlations between belongings had been very excessive for a interval of weeks. Now, it’s frequent for belongings to maneuver collectively in a bear market, however the value motion we noticed in March 2020 was excessive. For instance, gold is mostly thought-about a secure haven asset, but it too noticed declines within the Covid-related market decline. So if gold wasn’t performing as a secure haven on the time, ought to we have now anticipated Bitcoin to?
One motive we might not count on Bitcoin to carry out as a secure haven asset is whether it is used for hypothesis. If that’s the case, then it’s not shocking that speculators would promote at instances of market stress. Then again, if it had been owned by long-term buyers, then pricing is likely to be extra secure when the market is underneath duress.
Research suggests that at the very least in 2019, Bitcoin was primarily held for speculative functions. Bitcoin is usually owned by frequent merchants who maintain usually dangerous portfolios in keeping with this analysis. As such, Bitcoin is much less more likely to carry out as a secure haven asset given its investor base.
One key problem with Bitcoin is it’s maybe too early to type an actual evaluation of its portfolio traits. Even with long-standing belongings, they’ll carry out otherwise by way of totally different market cycles and also you typically need to look throughout a number of market cycles to type an knowledgeable view.
With Bitcoin we in fact, can’t try this, because it hasn’t been round for lengthy sufficient. That mentioned, analysis of Bitcoin’s trading patterns before 2020 did recommend excessive volatility and correlation with shares in down markets.
Nonetheless, as Bitcoin evolves over time so its investor base and portfolio traits might evolve too. Although Bitcoin might have the potential to change into an alternative to gold over time, for now it actually doesn’t commerce like a secure haven asset.