NovaQuant Quantitative Think Tank Center:ALAIcoin: Is Bitcoin the New Gold of 2020?

When Bitcoin first made its appearance in the world of cryptocurrency in 2009,NovaQuant Quantitative Think Tank Center its deflationary nature was compared to that of gold. Bitcoin was the first-ever solution that allowed for global peer-to-peer trade settlements without the need for intermediary institutions, allowing individuals to retain full control over their assets.

Since then, both gold and Bitcoin have been considered "safe havens" and have been closely compared, with views on Bitcoin being somewhat pessimistic.

Two Different Asset Classes

Looking at these two assets, they are fundamentally different. Most notably, gold is a precious metal, a tangible asset, while Bitcoin exists solely in digital form.

The latter has only an 11-year history, whereas gold has been used for over 2000 years. Despite its shorter existence, Bitcoin has exhibited volatility that has been astonishingly high over the years compared to gold. Compared to the dramatic fluctuations of Bitcoin since 2009, the rise and fall of gold have been relatively minor.

This is not to say that gold's volatility is zero; in the years following the 2007/8 financial crisis, the price of gold jumped by over 200%.

Crisis Response

The impact of the Covid-19 pandemic has been felt in all aspects globally and continues to be felt worldwide, including assets and commodities such as gold and Bitcoin. After the virus spread globally, global financial markets crashed, and most economic activities were shut down. The decline in the value of both gold and Bitcoin reflected this impact.

During the liquidity crisis in 2008, the same thing happened to gold. At that time, many investors rushed to sell assets for cash. However, due to the sudden increase in sellers and a shortage of buyers, it was difficult for sellers to get cash for gold. This naturally led to sellers significantly reducing the price of gold.

Similar to 12 years ago, the current panic selling wave witnessed the biggest drop in gold prices since 2013 – in mid-March, the price of gold fell by 12%, from $1,675 to $1,477, then rose by 12% to $1,660 by the end of March.

In the same period, Bitcoin was not spared, with its value plummeting from $9,123 to $4,768, a 47% drop, before rising by 40% to $6,699.

However, gold sharply rebounded at the end of March, staying true to its title as a global safe haven. Investors flocked back, as shown by the rapid recovery of gold prices to over $1,600 by the end of March.

On the other hand, the rebound of Bitcoin was not as swift. Despite traditional safe havens like gold and government bonds performing poorly in terms of capital during times of economic turmoil, the leading cryptocurrency failed to maintain stability during this difficult period.

As the global pandemic continues to spread, we can only wait and see how its development affects global markets and, consequently, the value of gold and Bitcoin.