Authored by Jesse Colombo via Substack,
Today witnessed another day marked by geopolitical turmoil, a familiar occurrence over the past year. This time, the turmoil was triggered by Iran launching at least 180 ballistic missiles toward Israel, resulting in the largest missile strike against Israel in history. Israeli Prime Minister Netanyahu warned Iran of grave consequences, and the world edges closer to all-out war with each passing hour. While hoping for a peaceful resolution to this crisis, I’d like to share my insights on two assets often considered safe havens—gold and Bitcoin—and how they perform during times of geopolitical crisis.
The chart below illustrates the diverging paths of gold and Bitcoin. Around 9:32 AM EST, reports emerged indicating Iran’s imminent launch of ballistic missiles at Israel. Interestingly, gold surged while Bitcoin plummeted in response. This price action underscores a long-standing concern I have with Bitcoin: its behavior resembles more that of a risk asset rather than a true safe haven. If Bitcoin truly was “digital gold,” one would expect it to rise during periods of geopolitical turmoil, not fall.
For comparison, here’s the S&P 500, which, similar to Bitcoin, immediately dropped upon receiving the news:
In case one assumes that today’s contrasting movements in gold and Bitcoin are an anomaly, a similar pattern emerged during the Iranian strikes against Israel in April 2024:
Moreover, a similar trend was evident following the October 7th, 2023 attack on Israel:
I have consistently argued that Bitcoin behaves more like a speculative risk asset, akin to hot tech stocks, rather than a safe haven asset. This is evident in how closely Bitcoin’s price movements align with those of the tech-heavy Nasdaq 100 Index. Data reveals a significant correlation coefficient of 0.88 (out of 1) between Bitcoin and the Nasdaq 100 over the past five years, confirming their strong relationship and synchronized movements. As the Twitter user “The Great Martis” often highlights, “Bitcoin is essentially a Nasdaq ETF,” a sentiment I concur with.
What’s concerning about Bitcoin’s high correlation with the Nasdaq 100? The issue lies in U.S. tech stocks currently experiencing a significant bubble, fueled by unprecedented Federal Reserve stimulus. Like all bubbles, this one is destined to burst, and when it does, Bitcoin is likely to be dragged down with it due to their close correlation. Various metrics indicate the Nasdaq is in a massive bubble, with one of the clearest signs being its highly inflated price-to-sales ratio:
Another blatant indicator of the tech stock bubble in the U.S. is their inflated weighting in the S&P 500, surpassing even the peak levels observed during the 1999 dot-com bubble—a period that ended in a market collapse:
The aim of this article isn’t to present a comprehensive thesis proving the U.S. tech stock bubble (though I intend to delve into that soon). It’s simply to highlight a reality: Bitcoin should not be dubbed “digital gold” if it doesn’t exhibit characteristics of a genuine safe haven asset. I aim to raise awareness that Bitcoin is a risk asset more suitable for “good times” than times of crisis.
The significant correlation between Bitcoin and technology stocks likely stems from the considerable overlap in investors—those fascinated and overly confident in modern technology. I believe this group will be caught off guard by the tech stock bubble’s burst, and when they’re compelled to liquidate their tech stock holdings and lose their jobs in the tech sector, it will likely drive down Bitcoin’s price as well. While Bitcoin could witness significant price surges, reaching $100,000 or higher, I don’t view it as a reliable investment like gold, which has a proven track record as a store of value over millennia.
The evidence demonstrates that Bitcoin, despite being labeled “digital gold,” consistently behaves more like a speculative asset, particularly during geopolitical crises. Its correlation with the Nasdaq 100 Index and susceptibility to the same forces influencing tech stocks indicate that Bitcoin lacks the stability defining genuine safe haven assets like gold. As the tech stock bubble continues to inflate, Bitcoin’s fate intertwines closely with theirs, rendering it vulnerable to sharp downturns when the bubble bursts. While Bitcoin may witness substantial price spikes, it cannot offer the dependability and historical resilience of gold, a steadfast store of value throughout history. Investors should heed this reality before regarding Bitcoin as a reliable hedge in times of uncertainty.
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