Oh, bitcoin. Your problem was never that you were too unpredictable. It was always that you weren’t unpredictable enough.
Bitcoin was never really going to cut it as a true currency. Its astronomical volatility—which is a problem if you want certainty about the value of your transactions or wealth—means that the likes of the Uzbekistani soum or the Ethiopian birr stand a better chance of supplanting the greenback.
Still, bitcoin’s disconnection from anything happening in the real world ought in theory to be its greatest virtue. The potential to provide negative beta—to move in the opposite direction of other assets in a portfolio, and thus take the edge off any swings and dips—has long been the best argument for investing in gold, bitcoin’s shiny physical avatar.
The past 10 or so days have shown that there’s some life in the old yellow metal yet. While the S&P 500 Index fell 7.8% from its peak on 26 January to its trough Monday, gold’s drop was a modest 0.7%, only bettered among major assets by the 0.4% fall in US 10-year Treasuries. Bitcoin crashed 35%, making it look more like a short-volatility ETF than a worthwhile hedge against market turmoil.
As Gadfly argued in December before gold’s 7% climb, a genuine crisis in financial markets is precisely the event to sort the sheep from the goats in terms of whether gold or bitcoin is a better haven asset. After the past week’s test, it’s a metal that’s proved its mettle. Bloomberg Gadfly