Those looking to hedge against a potential equities market crash this year would’ve outperformed the market by merely investing in bitcoin, without adding gold to the mix.
While most analysts would likely recommend hedging using a variety of investments that would more often than not include gold, data published by CryptoCompare shows that if a hedging strategy were to be based on bitcoin and gold, the more BTC was added to the mix the better it performed so far this year.
— CryptoCompare (@CryptoCompare) October 30, 2019
As the chart shows, both assets have seen their values rise so far this year as investors start weighting in a potential recession in the near future. Various factors, including negative-yielding debt, arguably overvalued equities, and market irrationality have some preparing for the worst.
It’s worth pointing out a portfolio completely allocated to BTC is a rather risky one, even if we consider bitcoin is “gold 2.0” like Gemini CEO Tyler Winklevoss defends it is. Hedging with gold, a safe-haven asset for over 5,000 years, would mean reduced risk. In CryptoCompare’s graph, It becomes clear the more gold is added to the mix, the less volatile the portfolio is.
Even though some see the stock market crashing in the future, so far this year the S&P 500 has been performing rather well. Data from Yahoo! Finance shows, in fact, it hit a new all-time high of 3,080 this week, as its decade-long bull run continues.
Source: Yahoo Finance
Some analysts argue financial policy is what’s behind the stock market’s positive performance, and fear negative interest rates are going to over time have a negative impact on the economy, and are now advising investors allocate a portion of their portfolios to safe haven assets like gold.
Ray Dalio, head of the world’s largest hedge fund Bridgewater Associates, has notably said gold is a good bet in the foreseeable future because the markets are currently “undergoing a paradigm shift.” Over the last five years gold rose 32% against the USD, presumably as investors factor in the risk of a recession.