2019-10-27 18:03 |
Bitcoin has been described as a safe haven in times of recession, appealing to investors looking towards it as a hedge against traditional markets. However, the same thing can be said about gold. The comparison has previously been made outlining the similarities of the two assets, with Bitcoin having been described as gold for the next generation.
The case for the importance of gold is made by its extended history, in which it has always been considered a fear trade. Therefore, when the markets are unstable, the demand for gold has historically increased. In the previous recession, (Dec 2007-Jun 2009) the price of gold increased by 16% percent — compared to a decrease of nearly 40 percent for the S&P 500 Index.
The proponents of Bitcoin believe that Bitcoin is a more novel way to hedge against an unstable market and more appealing to the next generation of investors. Since Bitcoin was originally created in 2008 as a response to the financial crisis, no data exists to compare its price during the recession.
The concept of a safe heaven could redefine itself throughout the next year, as investors will question how global political events and the global market will influence asset valuations of cryptocurrency and precious metals. The fears of an economic downturn have been exacerbated by recent reports that banks will not be able to survive another recession.
eToro’s Senior Market Analyst, Mati Greenspan, suggested that the current market climate has caused him to substantially increase his allocation towards gold.
Gold coming to the apex of its consolidation. With a strong breakout it could make a nice move.
With neg rates on the rise & the price to hold cash going up around the globe. I've decided to up my allocation substantially.
Not trading advice. Past performance != future results. pic.twitter.com/x4HPtShZM2
— Mati Greenspan (@MatiGreenspan) October 24, 2019
In the tweet. the technical outlook for gold looks quite bullish — allowing for a breakout and a potential upward move. Let’s compare the price and movement of both assets to see how they compare.
GoldGold has been on an uptrend since August 2018 — increasing by roughly 30 percent. Also, it seems to have just broken out from its trading pattern.
The positive outlook is strengthened by the fact that it is trading above both moving averages (MA) — which have made a bullish cross.
Bitcoin[Editor’s Note: The following was written before Bitcoin commenced a massive upward move last night.]
The Bitcoin price has been increasing since December 2018.
However, unlike gold — which is almost breaking out — BTC is still trying to find support and make a low which would allow it to initiate an upward move.
While the market outlook for Gold looks better than that of Bitcoin, this could quickly change in the future.
Therefore, one could make the argument that both assets can be used to hedge against an incoming financial crisis — with the allocation depending on preferences and risk tolerance.
Disclaimer: This article is not trading advice and should not be construed as such. Always consult a trained financial professional before investing in cryptocurrencies, as the market is particularly volatile.
Images are courtesy of Shutterstock, TradingView.
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