As often happens when the stock market drops, investors are looking to Bitcoin and asking the question: is this really a “safe haven” asset?
“Safe haven” assets are assets that investors can theoretically turn to staunch their losses when traditional markets are bleeding. They are, in other words, assets that won’t drop in value when stocks and bonds do.
So is Bitcoin a safe haven asset? The very short-term answer appears to be no. As stock markets are battered by fears of COVID-19 and the Russia-Saudi oil price war, Bitcoin’s price has been dropping right along with stocks. It has plummeted from highs over $10,000 in mid-February to just under $8,000 as of this writing.
But does this most recent short-term response mean that Bitcoin isn’t a safe haven asset? Not necessarily. Just look at Bitcoin’s history.
LongHash compared daily Bitcoin price data from Coin Metrics with daily close prices of the Dow Jones Industrial Average (DJIA), a stock index that measures the prices of 30 large American companies. The DJIA is often used as a barometer for the broader performance of Western stock markets. To make the comparison as direct as possible, we analyzed only days when stock trading was active. So, for example, Bitcoin’s weekend prices weren’t included in the analysis because there’s no corresponding DJIA price data for those days.
As the chart above suggests, if we look at Bitcoin’s entire history, the price of Bitcoin and the DJIA are pretty correlated. From 2010 to March 2020, the two have a Pearson correlation coefficient of over 0.84, suggesting strong positive correlation. In other words, the two numbers — the Bitcoin price and the DJIA — tend to move in tandem. When one goes up, so does the other.
If we break the data down by year, though, the pattern is less clear. In 2017, for example, we see a strong positive correlation of 0.90. But in other years, the correlation is weaker. 2012, 2013, and 2019 all show moderate positive correlations around 0.5, indicating that Bitcoin’s movements were a bit more divorced from traditional markets in those years. 2011, 2015, and 2018 all have correlations close enough to 0 that there likely wasn’t much connection at all between BTC and the DJIA at those times.
2014 shows a moderate negative correlation, meaning that Bitcoin’s price actually tended to do the opposite of whatever the DJIA was doing in that year.
What does all this mean? With the caveat that past performance isn’t necessarily indicative of anything that will happen in the future, it appears that Bitcoin can be a safe haven from some traditional market activity, though it isn’t a wholly reliable one.
Generally speaking, Bitcoin has moved in ways that seem to reflect what’s happening in the broader market. But there are exceptions — entire years that don’t fit this pattern. The data suggests that over the years Bitcoin has occasionally performed as an effective alternative to traditional markets.