Bitcoin Is Not the New Gold: A Comparison of Volatility, Correlation, and Portfolio Performance

Abstract

Cryptocurrencies such as Bitcoin are establishing themselves as an investment asset and are often named the New Gold. This study, however, shows that the two assets could barely be more different. Firstly, we analyze and compare conditional variance properties of Bitcoin and Gold as well as other assets and find differences in their structure. Secondly, we implement a BEKK-GARCH model to estimate time-varying conditional correlations. Gold plays an important role in financial markets with flight-to-quality in times of market distress. Our results show that Bitcoin behaves as the exact opposite and it positively correlates with downward markets. Lastly, we analyze the properties of Bitcoin as portfolio component and find no evidence for stable hedging capabilities. We conclude that Bitcoin and Gold feature fundamentally different properties as assets and linkages to equity markets. Our results hold for the broad cryptocurrency index CRIX. As of now, Bitcoin does not reflect any distinctive properties of Gold other than asymmetric response in variance.

Cryptocurrencies as a financial asset: A systematic analysis

“…This inverse dynamic serves as another proof of a potential negative correlation between investors' interest towards gold and cryptocurrencies. Klein et al [2018] compared Bitcoin to Gold and claim that Bitcoin acts in exact opposite manner in times of market distress. While gold can be effective hedge from a financial crisis due to the "flight-to-quality" behaviour of investors, Bitcoin is highly correlated with downwards markets.…”

A bibliometric analysis of bitcoin scientific production

“…There are some other outstanding articles in terms of number of citations such as the one by Van Hout and Bingham (2014) published in the International Journal of Drug Policy or the one written by Miers et al (2013) and published in the 2013 IEEE Symposium On Security and Privacy (SP). 2018; Katsiampa, 2019;Klein et al, 2018;McMillan, 2019), economic literature seems to overlook the impact of the technological setting (i.e. the different cryptocurrencies protocols) in the cross-behavior of cryptocurrencies.…”

Towards a Theory of Digital Network De/centralization: Platform-Infrastructure Lessons Drawn from Blockchain

“…Ammous, 2018;Cheah and Fry, 2015;Li and Wang, 2017). Other works tried to understand and inquiry where the value of a decentralized coin comes from and how it should be understood (Cheah and Fry, 2015;Dwyer, 2015;Hayes, 2017;Li and Wang, 2017;Peters et al 2015;Phillip et al 2018;Schilling and Uhlig., 2018), whether a decentralized coin can be theoretically regarded as "money", or at least fulfil some the function of money (Ammous, 2018;Carney, 2018;Corbet at al., 2018;Corbet et al, 2019;Guesmi et al, 2019;Klein et al, 2018;Kubat, 2015), how decentralized digital currencies should be understood and what type of asset class they are (Burniske and Tatar, 2018;Dyberg, 2016;Nabilou and Prum, 2018;, and how central banks and governments should respond (Barrdear and kumhof, 2016;Raskin and Yermack, 2016). some form of asymmetries and therefore of centralization of the monetary system.…”