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Gate.io Research:Research on the Similarity between Bitcoin and Gold

2020-01-28 10:13:42Read:105591

Matt Hougan, the head of global research company Bitwise, sees similarities between the remarkable surge of the Bitcoin price and the trajectory that the Gold price took during the 1970s. With that, it is believed that Bitcoin is “Digital gold”. However, gold is universally recognized as a stable safe-haven asset with minor returns and low risks. As for Bitcoin, it is a new investment option with great potential returns yet high risks in digital technology. So is it reasonable to carry such a belief?

Based on statistics and data analysis, the research compares the similarities and differences between Bitcoin and gold in terms of their basic features, changes in their prices under extreme events and sentiment indicators. It also discusses whether Bitcoin is suitable for being a safe haven asset. It can’t be denied that Bitcoin still has a long way to go before becoming an asset similar to gold since it is initiating a bottom-up digital revolution. Nevertheless, in the short term, in part due to economic turmoil, Bitcoin is able to be viewed as a safe haven asset supported by the trust of investors.

Key Takeaways:

- It is universally recognized that as a safe haven asset, gold holds value given its status as one of the national strategic reserves.
- When it comes to being a safe haven asset, the statistical analysis of gold is concluded generally. For example, there is a positive correlation between the price of gold and inflation. On the other hand, the correlation between the price and the US Dollar Index as well as other share indexes, such as DJIA and S&P 500, is negative. Therefore, gold can be a safe haven asset when the market suffers from major fluctuation.
- The statistical conclusion that Bitcoin is similar to gold when being a hedging instrument is based on the fact that the correlation between its price and main share indexes is weak and negative.
- With extreme events, the prices of Bitcoin and gold are closely connected (Pearson's r>0.75). Moreover, given economic turmoil, their prices will both see an upsurge, which shows their suitability for being a safe haven asset. Meanwhile, compared to gold, Bitcoin is more popular among investors as a hedging instrument, during national extreme events.
- In terms of being a safe haven asset, the price of gold is more stable than that of Bitcoin. In addition, Bitcoin is yet to develop into a mainstream investment option. Despite high risks, it is very possible that it can be a short-term hedging instrument, based on high investor confidence.

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Disclaimer: The research is a study based on the observed market data. Though we have attempted to be as diligent and accurate about the data as possible, it can not guarantee 100% accuracy. This research should not be used as a reference for your investment.

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Gate.io
January 28, 2020

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