Bitcoin is not gold

In a recent paper published for Humboldt University, researchers Tony Klein, Hien Pham Thu and Thomas Walther wondered if Bitcoin has market characteristics that make it similar to gold. Based on the data available up to December 2017, the answer seems quite unequivocal. Bitcoin shows returns that have an asymmetrical response to market shocks, in tune with the trend of precious metals, is the conclusion of the three researchers. Price increases lead to increased volatility. Considering the extreme price increases observed for Bitcoin, this result is not surprising for them. In the Bitcoin markets, researchers observed a huge rally in 2017, which ended with an important setback. These periods of high volatility led to greater persistence.
As for possible links with financial markets, the correlation measured shows that Bitcoin behaves completely differently from gold, particularly in the bearish market phases. While the flight-to-quality property of gold is confirmed, Bitcoin shows a positive mating effect that decreases when markets are falling, in situations of shock. Moreover, the evidence shows that Bitcoin is not a hedge to be used to protect an investor against the risks of equity investments, even if this hypothesis should be better tested. Furthermore, Bitcoin as a resource does not resemble any other conventional asset, at least from an econometric perspective. The results also seem to apply to other cryptocurrencies in the short term.
Finally, the researchers believe that cryptocurrencies will remain highly volatile and will continue to be exposed to strong movements in both directions, as their future development remains very uncertain. The significant movement of cryptocurrency prices depends on several factors. First, cryptocurrencies will continue to experience sharp price declines as investors continue to take profits to the maximum. Second, regulatory decisions will have a strong impact on investor behavior. Currently, regulators are still evaluating how to tackle the cryptocurrency problem. Thirdly, in the face of recurrent cyber attacks, the cryptocurrency ecosystem will have to strengthen its security standard to be accepted by traditional investors.