Lately stocks have been experiencing volatility and notably last month the S&P 500 Index underwent a correction. However the major indices are still not in bear territory yet. But further declines could lead to panic and this could potentially drive investors to safe-haven assets such as gold and bitcoin (BTC).
Last month when the Dow Jones Industrial Average fell by over 700 points it was because U.S. President Donald Trump had revealed that his administration was considering tariffs on goods imported from china into the United States. This also resulted in the S&P 500 falling once again.
So far however the volatility that the two indices have undergone is modest but in a bear market and in full market correction mode the perceived safe haven status of assets such as bitcoin and gold would make these assets more appealing.
According to Crypto Asset Management’s managing director, Tim Enneking, in the event that there is a major pullback with stocks, one of the likely beneficiaries will be bitcoin. It is understood that many market observers have been watching the relationship between Bitcoin and the stock market.
Per eToro’s senior market analyst, Mati Greenspan, no flows into bitcoin from stocks have been seen and this is likely because it is not a bear market yet as most of the selling had been done by bots and institutional investors. But in the event of a crisis materializing, it is the retail investors who will put their money in digital assets.
The chief operating officer of IRA Bitcoin LLC, Travis Parker, however had a different view saying that it is premature to try to predict how digital currencies would react in case of a major market correction. Parker also added that though virtual currencies possessed some of the advantages that precious metals also had, they were not correlated, it was possible that digital currencies would be resistant to volatility in the market and were also likely to benefit in case there was a shift to alternative assets that was based on sentiment. Additionally all assets that had highly appreciated would find themselves under pressure according to Parker.
Per blockchain advisor and investor, Oliver Isaacs, gold possesses some advantages over bitcoin with regards to safe haven assets. Gold has been in existence for thousands of years while bitcoin is not even a decade old. Additionally there are more hedging products that exist for gold compared to bitcoin and this includes options and futures.
Earlier in the year an analyst at Goldman Sachs, Zach Pandl, indicated that bitcoin was the new gold. According to Pandl the rise in the value of Bitcoin at the time (the digital currency had touched a record high a few weeks prior) was driven by dissatisfaction of consumers with the existing banking infrastructures and regulated monetary systems.
Pandl also predicted that with time virtual currencies would mature before evolving into a major asset class. But this would also lead them to become low-return or zero-return assets similar to precious metals like gold.
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