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Geopolitical Crisis: Bitcoin and the stock market are falling. For the price of Gold - another record

Published by Martin Karus in category Precious Metals on 29.03.2022
Gold price (XAU-EUR)
1 731,55 EUR/oz
  
- 1,55 EUR
Silver price (XAG-EUR)
20,05 EUR/oz
  
+ 0,20 EUR

Once again, we have a lot of uncertainty and tensions globally, similar to the beginning of 2020 when COVID-19 gained traction. This time, it is not a new scary virus but a simple old-school war – Putin has invaded Ukraine.

These geopolitical crises tend to shine a light on re-evaluating investment options and showing a true nature of an investment type. The downturn in the stock market and the recent escalation of geopolitical tensions make it clear that Bitcoin, which is often compared to digital Gold, hedges against falling stock markets and uncertainties, is not a viable hedge.

As the Russia-Ukraine crisis deepened on Tuesday, the price of Bitcoin fluctuated a lot. The lowest bitcoin price dropped was about $ 34 500, a roughly 13% price drop in a week. The decline marks a stark contrast in which asset classes hold value and tend to increase in price under a tremendous amount of geopolitical pressure.

Gold price reached the highest price level since September 2020, when the price touched 1975 USD/oz, but it got quickly sold off. Currently, Gold is trading around 1914 USD/oz, which is the highest closing price since June 2021

Cryptocurrencies: Hopes and Realities

Recently, it has been observed that cryptocurrencies have gradually become more synchronized with publicly traded stocks, although cryptocurrencies are much more volatile than stocks. It is clear that cryptocurrencies are strongly affected by geopolitical situations like we are currently facing and are not an adequate alternative to be considered as a safe-haven asset like Gold or even Silver.

When comparing crypto assets to stocks, it should be noted that Bitcoin and crypto price fluctuations are usually much steeper than, for example, the S&P 500 index stocks. The volatility of cryptocurrencies can bring significant benefits when they rise in price and painful losses when they fall.

For example, the Eurekahedge cryptocurrency hedge fund index, which tracks fund managers focusing on decentralized digital money, fell by about a fifth in January – the most significant drop since November 2018.

This year’s events show that Bitcoin is not, at least yet, a hedge nor a safe investment. Bitcoin can not yet be classified as a refuge or a bond substitute searching for safe diversification. However, if you are looking for high-risk, high-reward investment opportunities, Bitcoin (and other cryptos) can still provide that.

Quick information:

  • The value of Bitcoin has decreased 25.7% in 2022
  • S&P 500 index has fallen 12% since the beginning of the year.
  • Dow Jones Is down roughly 10% this year.
  • However, the price of Gold rose by 8.4% this year, reaching around 1975 USD/oz, which is the highest price level since June 2021.

Gold has proven time after time to be a safe-haven asset for substantial uncertainties and crises like we are facing now, at the beginning of 2022.

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Gold price (XAU-EUR)
1 731,55 EUR/oz
  
- 1,55 EUR
Silver price (XAG-EUR)
20,05 EUR/oz
  
+ 0,20 EUR

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