Is Bitcoin digital gold?

Gold is often regarded as a safe haven. The precious metal has been used for thousands of years and has proven to be a crisis-proof investment in troubled times. Supporters of cryptocurrencies see Bitcoin as a modern alternative to gold: they want to protect themselves from the uncertainties of global politics with “digital gold”. After all, wars, terror or even high inflation create risks and high volatility in every portfolio. Even Larry Fink, head of the world's largest asset manager BlackRock, one of the most important opinion leaders on Wall Street, now sees Bitcoin as an anchor of stability. This is partly because the cryptocurrency has only a low correlation to equities. But can investors really hedge against geopolitical risks with Bitcoin?

There are various indicators that can be used to define and classify geopolitical risks. For example, the frequency of media coverage of topics such as threats of war or acts of terrorism can be measured. The Geopolitical Risk Index (GPR) by Dario Caldara and Matteo Iacoviello combines these indicators to make crises measurable and comparable. The index skyrockets when threatening events occur. This is relevant because a higher geopolitical risk heralds a decline in investment, share prices and employment. Swings in the GPR are therefore also associated with greater downside risks for the global economy.

How Bitcoin reacts to geopolitical risks

In the analysis, the Bitwise team only considered statistically significant geopolitical risk events that occurred between July 2010 and today. In a second step, the 20 most important risk events worldwide were selected based on the overall level of the GPR index. The development of the index was then compared with the performance of Bitcoin up to 50 days after the event. The result is quite clear: on average, Bitcoin gained significantly after these major geopolitical risk events. Even if the average performance of Bitcoin over a random time window of 100 days is excluded, the cryptocurrency still achieved an above-average return.

These findings confirm earlier studies by Almeida et al. (2024), which also found that crypto-assets can serve as a hedge against geopolitical risks. Incidentally, such political crises are often accompanied by high inflation. The so-called fiat currencies such as the euro or US dollar then depreciate and people can buy less for their money. The annual inflation rates since the start of the coronavirus pandemic have demonstrated this impressively.