Bitcoin (BTC 1.16%) has sometimes been referred to as “digital gold,” suggesting that it can be a safe haven type of investment, and that it can help hedge against volatility in the stock market. But is that really the case? Based on how it’s done this year and during the last big market crash, it looks to be the complete opposite.
Bitcoin has crashed right along with the markets
Gold is supposed to offer investors some stability in hard times. It’s generally seen as a good way to store value, and investors normally flock to it when they are worried about the economy or the markets in general. Crypto investors see Bitcoin as potentially filling the same role, but in a digital way.
However, with the S&P 500 index in a free fall in recent weeks due to recently announced global tariffs and growing concerns about a possible recession being on the horizon, Bitcoin has been anything but a safe haven type of investment.
Bitcoin Price data by YCharts
Not only has it failed to provide investors with any safety whatsoever, but it has performed worse than the markets. The chart above resembles the opposite of a hedge and instead might suggest that Bitcoin is highly correlated to the S&P 500. And if you go back and compare 2022, when the S&P 500 crashed by 19%, there, too, Bitcoin offered no safety — it crashed by 65%.
Real gold has been going in the opposite direction
While Bitcoin and the S&P 500 have been crashing, the value of real, physical gold has been rising. It has acted as a safe hedge against the market, just as investors expected it would. Recently, gold hit a new all-time high of $3,245 as concerns of an economic slowdown remain high. For now, the physical asset is proving to be a much more stable option for investors looking to minimize risk. While Bitcoin investors may like to think of the cryptocurrency as being just as good, that hasn’t proven to be the case this year, nor in 2022.
Holding a position in the SPDR Gold Shares (GLD 3.24%) exchange-traded fund, which is backed by physical gold, has proven to be a much better way to offset risk in the market this year. It is up more than 22% since January.
Is Bitcoin a good asset in your portfolio to minimize your overall risk?
Bitcoin is a speculative investment, and that isn’t going to change anytime soon. Due to its often wild movements, it’s not likely to appeal to risk-averse investors.
I see it as a way to gauge the overall risk appetite in the markets. When enthusiasm is high and investors appear unconcerned about valuations, Bitcoin is soaring, and the markets likely are as well. The S&P 500 has been performing well before this year because investors haven’t been thinking about the sky-high values of many popular stocks, but as that changed the index struggled, as has Bitcoin’s price.
Bitcoin isn’t an asset you can hold in your portfolio unless you are comfortable with significant risk — which is quite the opposite of gold. It may sound great to call it “digital gold” but it isn’t going to provide investors with real safety. You’re likely better off investing in a gold ETF or loading up on low-volatility stocks.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.