How crisis-proof is Bitcoin really?

Born out of the 2008 financial crisis, Bitcoin was created as protection against exactly that kind of devastating scenarios.

Born out of the 2008 financial crisis, Bitcoin was created as protection against exactly that kind of devastating scenarios. The cryptocurrency was designed to operate outside the traditional financial system: decentralized, without intermediaries, and with a maximum supply of 21 million coins. That makes Satoshi Nakamoto's creation stand out from stocks, bonds, and even gold.

Yet in practice Bitcoin often shows a similar price movement to traditional financial markets during geopolitical or economic tensions. Take, for example, the trade war led by Donald Trump: just like stock markets, Bitcoin also corrected a lot. That clashes with the image many Bitcoin supporters paint, namely that BTC is the safe haven in times of crisis. Gold, by contrast, often preserves value in uncertain times, or even hits new record highs. So is Bitcoin really the promised crisis protection? Or are investors returning to shiny precious metal?

Bitcoin: a speculative investment asset?

In recent crises, Bitcoin has stood out by often following the stock market trends. When indices like the Nasdaq and S&P 500 fell, BTC fell too. During the escalation of trade tensions between the U.S. and China, Bitcoin's price dropped along with many market indices. At the same time, gold climbed to new highs.

According to Mark Valek, an investment specialist and partner at wealth manager Incrementum AG, Bitcoin is still viewed as a speculative investment asset, mainly due to high volatility and its strong correlation with global liquidity flows. In the past, Bitcoin's value often rose in step with the U.S. central bank's quantitative easing policy.

Gold as a safe haven, Bitcoin (not yet)?

The investment bank Standard Chartered recently studied Bitcoin's role as a safe haven, especially in light of the Middle East conflict. Their conclusion: Bitcoin does offer protection against problems inside the traditional financial system, such as bank failures, but it is not a safe haven during geopolitical tensions. Gold, on the other hand, does. According to J.P. Morgan, the precious metal even benefits from geopolitical unrest.

Mark Valek partly concurs. “Many analysts think Bitcoin has the potential to become a crisis hedge in the long run, similar to gold,” he says. That potential lies mainly in Bitcoin's scarcity and its independence from central banks. “But compared to gold, which has been seen as a safe haven for centuries, Bitcoin is still young.”

Still, Valek believes a shift could occur in the long term. “But for that, Bitcoin must first prove itself as a stable store of value rather than a purely speculative asset.”

According to him, that could become reality if global inflation persists and demand for scarce, liquid assets grows, especially as faith in fiat money wanes.

Gold or Bitcoin: what works better in a crisis?

Statistically, gold and Bitcoin show little mutual correlation. The correlation coefficient sits near zero, meaning they don’t necessarily move in the same direction—and not necessarily in opposite directions either.

“In the current geopolitical crisis, gold is performing better than Bitcoin,” Valek notes. But he says that’s not solely due to geopolitical factors. The annual ‘In Gold We Trust’ report describes how new buyers—especially from emerging markets and central banks—have offset the moderate demand from the financial system.

At the start of the pandemic, gold and Bitcoin moved in tandem: both fell sharply at first, then surged dramatically. “That shows gold doesn’t have to outperform in all cases,” Valek says. “Especially in liquidity crunches, when investors sell assets to raise cash, so-called safe havens can come under pressure.”

Gold and Bitcoin: the power of combining

Valek says it’s not useful to claim gold and Bitcoin always react differently to crises. “There are too many variables influencing the performance of both assets.”

The bottom line? Gold remains the established safe haven for now. But Bitcoin, despite its youth, has the potential to play a serious role as a crisis hedge in the long run if it can shed its speculative image.