There was an argument made a couple of years ago that bitcoin, with its self-regulating blockchain that is independent from the modern financial system, would be an asset that offers protection in times of turmoil. As bitcoin doubled in value in 2016, one analyst told CNBC claimed that it had similar characteristics to the ultimate safe haven—gold. Both have an “extremely limited supply and a relatively inert state,” he said.
A Goldman Sachs analyst even told clients at the start of the year—after a crazy 2017 that saw bitcoin rise from $900 to nearly $20,000—that cryptocurrencies were better to be thought of as stable assets, like gold, rather than alternative currencies to the dollar as coins are usually pitched. “We should stress that, as money, cryptocurrencies should have low expected returns in the long run, despite their high returns recently,” Zach Pandl wrote. “Digital currencies should be thought of as low/zero return or hedge-like assets, akin to gold or certain other metals.”
That myth came to an end this year.
Despite what is turning into a disastrous end of the year for US stocks—which has seen $4 trillion wiped out since late September, according to Bloomberg (paywall)—they showed much of the steady growth and stability that has seen billions pour into index funds to simply track them. Many stocks might be in a bear market—but that is after the longest bull market in history, in an asset class that is extremely easy to get in and out of for investors.
Conversely, after a disappointing year as US stocks continued to rise, gold has made a slow and steady comeback as equities have fallen through the floor. In actual state-backed currencies, the US dollar has had an unexpectedly good year after a bad 2017 on the back of a series of Fed rate hikes. The most crowded trade among fund managers is betting on a rise in the US dollar (paywall).
Meanwhile, bitcoin has lost almost 80% of its value in 2018, a pretty painful turnaround whether you think of it as the new safe-haven asset or the new greenback.