Crypto currencies are no safe haven in times of crisis

News Arnulf Hinkel, financial journalist – 11.02.2019

"Digital" gold or "gold 2.0", as crypto currencies are often referred to by their fans, may well be comparable with regard to the hopes they conjured among fortune-hunters in the California gold rush in the mid-19th century of easily attaining great wealth. As to their suitability as a crisis currency, however, a recent study by the World Gold Council has concluded that gold and crypto currencies have nothing in common.

Market slump in Q4 2018 served as a perfect test

In the last three months of 2018, the world's financial markets experienced their largest quarterly losses since 2009, when share prices were still suffering from the aftershock of the financial crisis. Thus, the fourth quarter of 2018 might have been an excellent opportunity for crypto currencies to demonstrate their qualities as a safe haven. However, quite the opposite proved to be the case.

Bitcoins performed worse than the stock market

The World Gold Council compared how gold, the US benchmark index Nasdaq and Bitcoins performed during the market slump from October to December 2018. While gold, as expected, inversely correlated with the Nasdaq (-0.73 per cent) and completed a year-end rally with a rise of 9.4 per cent, the crypto currency Bitcoin showed a heavy correlation with the US benchmark index at 0.69 per cent. However, the behaviour of the digital currency more closely resembled a technology stock than the Nasdaq itself: while the index fell 19 per cent in Q4 2018, the crypto currency lost as much as 55 per cent of its value. The last quarter of 2018 is consideres one of the few true stress periods for companies and financial markets since the financial crisis and, according to the findings of the study, can certainly be seen as symptomatic of the crypto currency's inability to serve as a safe haven in times of crisis. This role is still reserved for gold.

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