From gold to bitcoin: a look back on 2008

Bitcoin has been unable to avoid contagion from traditional markets since the coronavirus selloff kicked off. What we’ve learned is that institutional ownership of Bitcoin may be higher than previously expected, as Bitcoin has been disappointingly correlated with the traditional risk assets over the past month. Traditional risk assets not only seem to give Bitcoin its daily direction, but also seem to have Bitcoin on a leash, waiting for their every move. Just take a look at the correlation between the S&P 500 and Bitcoin.

Source: Tradingview

Bitcoin’s correlation with risk assets has prompted many to call into question its safe haven status. We addressed this question previously, arguing that Bitcoin is not a hedge against a recession, it is a hedge against fiat monetary systems. Furthermore, short-term correlation is not indicative of long-term correlation or performance. There are lessons we can draw from the past from Bitcoin’s meatspace counterpart, gold.

Gold and the 2008 Financial Crisis

After Bear Stearns collapsed in March 2008, gold plummeted along with the S&P 500, taking its most severe dive in the liquidity crunch following Lehman Brothers bankruptcy on September 15, 2008. The weeks following Lehman’s fall saw numerous seemingly bullish announcements for gold including extraordinary monetary and fiscal stimulus measures, yet gold continued to sell off with everything else. In a liquidity crunch all correlations go to one.

However, gold eventually bottomed in November 2008, and once it did, it began an incredible bull run. Following some of the most aggressive monetary policy actions in history, gold rose 168% to it’s all-time high on fears of inflation. In dollar terms gold rose from $704.90 on November 13, 2008 to $1,888.70 on August 22, 2011.

Lessons for Bitcoin

To say the least, today’s crisis is different from 2008. While gold rose on fears of central bank induced fears of inflation, today’s market expectations for such may be different as post-crisis monetary stimulus failed to produce the inflation many investors feared. Indeed inflation expectations this time around are plummeting despite the already aggressive actions taken by central banks around the world, including the kick off of QE4.

Source: Federal Reserve Bank of St. Louis

The lesson here is not that Bitcoin could do exactly what gold did following the financial crisis for the same reasons. Instead the lesson here is that it often takes a long time for crises to play out, and short-term performance is not indicative of long-term performance. The game has just begun.

Let us know what you loved about the report, what may be missing, or share any other feedback by filling out this short form. All responses are subject to our Privacy Policy and Terms of Service.