Is Bitcoin Really A New ‘Safe Haven’ Asset?

Is bitcoin a new digital gold? 

That’s the question on everyone’s mind recently. 

Over the weekend, Barron’s laid out the skeptical case in an article titled “Is Bitcoin A Safe Haven?”: 

“This week certainly would appear to qualify as a good test for an asset’s safe-haven bona fides,” the magazine wrote. “There was a market meltdown in Argentina, escalating trade tensions between the U.S. and China, inversion of the Treasury yield curve (viewed as a recession indicator), grim economic news from Germany, and anti-government protests in Hong Kong.”

And yet, it noted, bitcoin ended the week down 10%.

I guess the whole “bitcoin = digital gold” thesis is dead, right?

Wrong.

Bitcoin Is Like Gold … Just In The 1970s

Safe haven assets are supposed to be boring. Take gold, for instance: The annualized return of gold since 1980 is 2.3%/year. Adjusted for inflation, it’s -0.7%/year. While there have been good years, like the 2000s, for the most part, it’s just sat there, like a dumb rock, holding its value.

Which is, after all, what it’s supposed to do.

If you’re interested in wealth creation, history suggests you don’t actually want a store of value; you want an emerging store of value. That is, an asset that has all the characteristics of a store of value, but doesn’t yet have widespread acceptance amongst investors.

We know this by studying the history of gold. The vast majority of returns gold has enjoyed in the modern era came in the 1970s. Consider the returns by decade:

  • 1970s: 1,365% 
  • 1980s: -22% 
  • 1990s: -28% 
  • 2000s: 281%
  • 2010s: 50%

The 1970s was, of course, when the U.S. abandoned the gold standard. At the time, people didn’t know what to make of gold. Would it succeed as a “safe haven” asset, untethered from the dollar, or be cast aside as a “barbarous relic,” as John Maynard Keynes once called…

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