In recent years, the debate over whether cryptocurrencies like Bitcoin and Ethereum can rival traditional precious metals such as gold and silver has intensified. With the rise of spot Bitcoin ETFs, growing institutional adoption, and macroeconomic turbulence—from the Covid-19 pandemic to geopolitical conflicts—investors are re-evaluating what constitutes a true safe haven asset.
This analysis revisits the methodology of Klein et al. (2018) in "Bitcoin is Not the New Gold", extending their research using updated data from January 1, 2018, to April 1, 2024. The goal? To determine whether digital assets have evolved enough to function as reliable hedges or if gold remains the superior choice for portfolio diversification and risk mitigation.
Core Keywords
- Bitcoin
- Ethereum
- Gold
- Cryptocurrencies
- Hedge
- Safe Haven
- Volatility
- Portfolio Diversification
These keywords reflect both investor search intent and the core themes of financial resilience, asset correlation, and market behavior during stress periods.
Understanding Volatility: How Stable Are These Assets?
Volatility is a critical factor when assessing an asset’s suitability as a hedge. High volatility suggests unpredictability—often undesirable during market downturns.
Using APARCH and FIAPARCH models, this study analyzes conditional variance across Bitcoin, Ethereum, gold, silver, and major indices like the S&P 500. The findings reveal:
- Bitcoin and Ethereum exhibit significantly higher standard deviations (4.44% and 5.77%, respectively) compared to gold (0.88%) and silver (1.78%).
- Both cryptocurrencies show high kurtosis, indicating frequent extreme price movements ("fat tails").
- While Bitcoin’s average daily return has declined since 2017 (from 0.40% to 0.10%), it remains more volatile than any traditional asset analyzed.
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Despite increased maturity in the crypto market—including regulatory approvals and institutional involvement—digital assets still carry elevated risk relative to precious metals.
Gold, by contrast, maintains a steady return profile with low volatility. Its price movements are less reactive to short-term shocks, making it more predictable over time.
Dynamic Correlations During Market Stress
A key attribute of a safe haven asset is its ability to maintain negative or neutral correlation with equities during market distress. According to Baur & Lucey (2010), a true safe haven performs well when other assets falter.
Using the BEKK-GARCH model, dynamic correlations between each asset and the S&P 500 were measured across two major crisis periods:
- December 2019 – April 2020: Outbreak of the Covid-19 pandemic
- September 2023 – January 2024: Escalation of geopolitical tensions
Gold: The Proven Safe Haven
Gold’s correlation with the S&P 500 drops sharply into negative territory during crises—reaching as low as –0.5154 during the pandemic crash. This confirms its role as a true safe haven: investors flock to gold when equities plunge.
Silver: A Weaker Hedge
Silver also shows countercyclical tendencies but with less consistency. Its lowest correlation was –0.4314, yet its average correlation remains positive over time. This classifies silver more as a diversifier than a reliable safe haven.
Bitcoin: Limited Hedging Value
Bitcoin maintains a predominantly positive correlation with the S&P 500 (peaking at +0.7790), undermining its hedging credentials. Even during downturns, its correlation only dips to –0.2067, far less pronounced than gold’s drop.
While this marks an improvement from earlier studies—where Bitcoin showed erratic swings—it still behaves more like a speculative tech asset than a store of value.
Ethereum: Most Reactive, Least Reliable
Ethereum displays the most dramatic shifts in correlation, dropping below Bitcoin during stress periods. However, its baseline correlation is higher, and it lacks consistent negative performance when markets fall. It cannot be classified as a dependable hedge.
Portfolio Performance: Do Crypto Assets Add Value?
An ex-post portfolio analysis evaluates how adding Bitcoin, Ethereum, or gold affects a portfolio’s return and risk when paired with the S&P 500 or MSCI World Index.
Weight Allocation in Minimum-Variance Portfolios
- Gold commands large allocations—averaging 57.5% in S&P 500 portfolios—indicating strong demand for its stabilizing effect.
- Bitcoin averages just 1.46%, while Ethereum often holds negative weights, suggesting shorting opportunities due to instability.
- Extreme weights for crypto assets (as low as –57%) highlight reliance on leverage and derivatives, increasing systemic risk.
Returns and Risk During Market Distress
| Asset | Full Period Return | Volatility | Return at VaR(1%) |
|---|---|---|---|
| S&P 500 | 0.0408 | 1.26 | –3.58 |
| + Bitcoin | 0.0334 | 1.39 | –3.53 |
| + Ethereum | 0.0503 | 1.31 | –3.64 |
| + Gold | 0.0439 | 0.71 | –1.94 |
Gold reduces portfolio volatility by over 44% while improving returns during distress. In contrast, crypto-inclusive portfolios either increase risk or underperform.
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Frequently Asked Questions (FAQ)
Q: Can Bitcoin replace gold as a safe haven?
A: No. While Bitcoin has become less volatile and shows some countercyclical behavior, its high correlation with equities and frequent price spikes prevent it from acting as a reliable safe haven like gold.
Q: Is Ethereum a better hedge than Bitcoin?
A: Not significantly. Ethereum shows sharper correlation swings but lacks consistent negative correlation during downturns. Both cryptos perform poorly compared to gold in hedging roles.
Q: Why is gold still considered a top hedge?
A: Gold has intrinsic scarcity, global acceptance, no counterparty risk, and a long history of retaining value during inflation and crises. Its low volatility and proven negative correlation with stocks solidify its status.
Q: Does adding crypto improve portfolio diversification?
A: Marginally at best. Cryptocurrencies introduce diversification benefits due to partial independence from traditional markets, but their high volatility often offsets gains, especially during stress.
Q: Will ETF approvals make Bitcoin more stable?
A: Possibly. Regulatory validation through spot Bitcoin ETFs may attract long-term investors and reduce wild price swings over time—but structural volatility remains deeply embedded in crypto markets.
Q: Should I include crypto in my defensive portfolio?
A: Only in small allocations if you accept high risk. For conservative or retirement-focused portfolios, gold remains the superior choice for capital preservation.
Final Verdict: Gold Still Reigns Supreme
Despite advancements in blockchain technology, regulatory clarity, and growing acceptance of digital assets, Bitcoin and Ethereum have not surpassed precious metals as effective hedges.
Key takeaways:
- Volatility: Crypto assets remain far more volatile than gold.
- Correlation: Only gold consistently decouples from equities during crises.
- Portfolio Impact: Gold improves returns and slashes risk; crypto adds complexity without clear benefits.
While cryptocurrencies are maturing—and may one day serve as alternative stores of value—they currently function better as speculative instruments than as pillars of financial safety.
For investors seeking stability amid uncertainty, gold continues to outperform, proving once again that not all that glitters digitally is gold.