Is Bitcoin a risky asset or a hedge asset? This article discusses the investment attributes of Bitcoin by analyzing the price fluctuations of gold, US stocks, and Bitcoin during times of war.
Table of Contents:
Risky Assets and Hedge Assets
Systematic Risk and Non-Systematic Risk
Bitcoin, Gold, and US Stocks During Times of War
February 24, 2022: Start of the Russia-Ukraine War
October 7, 2023: Israel vs. Hamas Conflict
April 12-14, 2024: Iran-Israel War Imminent
Female Stock Guru: Bitcoin is both a risky asset and a hedge asset
Since its proposal by Satoshi Nakamoto in 2008, Bitcoin has gradually been recognized by the market as an emerging investment target with potential to become the “digital gold” and a new generation of hedge assets.
However, the question of whether Bitcoin has hedging capabilities has always been a focus of market debate. The following section compares the definitions of risky assets and hedge assets, and then compares the price trends of gold, the S&P 500, and Bitcoin during three recent regional conflicts (Russia-Ukraine War, Israel-Hamas Conflict, Iran-Israel Conflict) to discuss whether Bitcoin truly has hedging properties.
Risky Assets and Hedge Assets
Risky assets refer to investment targets with uncertain future returns and large price fluctuations, which involve taking significant risks while pursuing high returns. The most representative risky asset is stocks, and others include funds and futures.
Hedge assets, on the other hand, are assets that have relatively fixed returns, smaller fluctuations, or certain preservation capabilities. Gold is globally recognized as a hedge asset, and others include US Treasury bonds and real estate.
Systematic Risk and Non-Systematic Risk
When making any investment, we often hear the phrase “investments involve risks, be cautious when entering the market.” In investment, risks can be divided into systematic risk and non-systematic risk.
Non-systematic risk is easy to understand and usually refers to individual risks associated with a specific investment target, such as the operating conditions of a listed company or changes in management personnel (such as the previous internal coup at OpenAI or Sam Altman being removed from the board for a short period), or a DeFi contract being hacked. These risks are not enough to threaten the entire financial market or financial system.
Systematic risk, on the other hand, is much more frightening and refers to risks inherent in the market itself. Once a so-called “black swan” event occurs, it may cause turbulence in the global financial market, such as the 2008 financial crisis, the outbreak of the COVID-19 virus in 2020, the Russia-Ukraine War, or the Israel-Palestine conflict.
The main function of hedge assets is to cope with these possible systematic risks, because when the entire financial market fluctuates, hedge assets have certain preservation capabilities and may even experience independent upward trends, thereby offsetting asset losses.
Bitcoin, Gold, and US Stocks During Times of War
In recent years, in addition to the COVID-19 virus, major events that have caused instability in the global financial system include frequent wars. The following section compares the price trends of Bitcoin, gold, and US stocks during the Russia-Ukraine War in 2022, the Israel-Hamas Conflict in 2023, and the Iran-Israel Conflict in 2024:
Bitcoin:
On the day of the outbreak, Bitcoin experienced significant volatility and broke through $40,000 a few days later, but then rapidly declined from April to July.
Gold:
It experienced an upward trend and maintained above $1,900 for the following two months, reaching $2,068 in March, but then oscillated and declined from April to July, similar to Bitcoin.
S&P 500:
It experienced a brief upward trend after the war started, but from April to mid-June, it continued to decline.
Summary: All three experienced short-term increases, but then synchronized declines.
Bitcoin:
Bitcoin experienced a short-term decline, but starting from mid-October, it continuously increased for seven months.
Gold:
It continued to oscillate and rise after the war, but its increase was not as strong as Bitcoin.
S&P 500:
It declined after the war started, but rebounded at the end of October and has been rising since then.
Summary: The upward trends of the three are similar, but the extent of the increases varies.
Iran-Israel War Imminent:
Bitcoin: Bitcoin plummeted 15% in two days and fell below $60,000 at one point. It has slightly rebounded this week and was at $62,715 at the time of writing.
Gold: Gold initially rose and then fell, currently rebounding to around $2,391.
S&P 500: It has been declining since April 15.
Summary: Although gold also experienced a brief decline this time, the decline was not as severe and the rebound was more significant. The declines in Bitcoin and the S&P 500 were more severe.
Overall, if you don’t like volatility, gold has smaller short-term fluctuations and a higher preservation rate. But if you want investment benefits, Bitcoin is a better choice, but it requires the ability to withstand higher volatility.
Female Stock Guru: Bitcoin is both a risky asset and a hedge asset
Regarding the investment attributes of Bitcoin, Cathie Wood, the founder of Ark Invest and known as the female stock guru, has also stated in the past that Bitcoin is not only a risky asset but also a hedge asset. The following chart compares the trends of BTC and the Nasdaq 3x Index, showing a strong correlation between the two.
Additionally, Anthony Scaramucci, the founder of SkyBridge Capital, also publicly stated on the 17th:
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