Given the disturbing news overnight about Russia’s invasion of Ukraine, it feels somewhat trivial to write about finance this afternoon. I sincerely hope the people of Ukraine will be safe. Personally, I find it hard to believe that in 2022 we are on the brink of war in Europe. It is heartbreaking.
Still, from a market perspective, it is natural that volatility rose sharply over the last 24 hours. In this article I want to focus on one particularly interesting development: Bitcoin’s price movement compared with other major asset classes. One of the most alluring narratives in crypto is that Bitcoin functions as a hedge:
- Bitcoin provides an effective hedge against inflation, a way to avoid fiat currency devaluation (a claim that gained traction amid recent heavy money printing).
- It is “digital gold” — therefore it should improve the risk-return characteristics of a portfolio that includes equities.
It is the second point I want to examine, specifically in the context of the past 24 hours.
Market Downside
So, Putin declares war. How did markets respond?
- Equities: The S&P 500 fell around 2.8%, Europe’s Stoxx 600 dropped about 3.5%, and the Nasdaq declined nearly 3%. This is expected — no surprise there.
- Gold: The metal touched a 17-month high, up approximately 1.5%, so it behaved like a traditional safe-haven hedge. Gold holders were rewarded, though the move wasn’t extraordinary.
- Bitcoin: The self-proclaimed digital gold has long touted its hedge credentials. With a crisis and a stock-market sell-off unfolding, this was Bitcoin’s moment to prove the thesis. The result? A decline of roughly 7%.
Returns of gold (black), S&P 500 (blue) and Bitcoin (orange) over the past 24 hours, via BarChart.com
Correlation → 1
In crises, correlations trend toward one. There is a flight to quality; investors cut risk and favor safe assets, cash above all. Gold has long been recognized as a safer store of value. The events of the last day show that Bitcoin did not qualify as a safe-haven asset this time. Volatility and cryptocurrencies go hand in hand; until Bitcoin’s standard deviation falls materially, it will struggle to prove its role as a reliable store of value.
So Bitcoin is still the apprentice to the master that is gold. With recent 30-day volatility estimates for Bitcoin around 3.36%, it’s unsurprising that investors shed exposure in turbulent times. This does not necessarily imply gold is a better long-term investment than Bitcoin — I use the term “master” loosely. Personally, I remain unconvinced about holding gold given its return profile over the last decade (less than 5% since 2011 while many other assets outperformed). The opportunity cost of holding gold has been painful recently. But this piece is about hedging properties, not expected returns — and today Bitcoin has not proven itself resilient during market stress.
Gold is only slightly above its 2011 highs, via BullionVault.
Maturity
It’s important not to forget — and I will repeat it often — that Bitcoin remains in an early stage. Created in 2009, it has achieved far more than many early enthusiasts imagined. Yet people are uneasy about volatility — what did they expect? Do we expect a fully established store of value after only a decade? Humanity first discovered the lustrous appeal of gold around 4000 BC, giving millennia for its store-of-value properties to crystallize. It took centuries for societies to anchor trust in gold. Bitcoin has not had that luxury of time.
So while Russia’s march into Ukraine shows Bitcoin is not yet an established store of value, that should not surprise anyone. In moments of geopolitical shock, it is reasonable to prefer cash or gold over crypto. No special analysis is needed; the outcome is plain to see.
Precedent
Look back to March 2020, when the pandemic first sent seismic shocks through every market. That crisis was more severe than last night’s aggression, with the S&P 500 suffering two of its worst days within a single week (-12.0% and -9.5%). Bitcoin famously halved almost instantly, dropping from $7,900 to $4,100. As my former housemate used to quip, once you’re in crypto, equities can start to feel… boring.
Bitcoin chart during the onset of COVID, March 11–13, 2020
Progress
Since March 2020 we’ve seen important developments: Bitcoin was added to Tesla’s balance sheet, El Salvador adopted it as legal tender, media attention surged, and at one point market capitalization topped $1 trillion (before retreating this year). Still, harsh drawdowns have recurred:
- May 2021: from $58,000 to $33,000
- September 2021: from $53,000 to $41,000
- November/December 2021: from $68,000 to $33,000
So today’s sell-off is not unique, and it stems from real-world events. The May 2021 crash in particular felt random; the asset behaved like a typical cryptocurrency — volatile and prone to steep corrections.
Future
Let me be clear: I remain long-term optimistic on Bitcoin. Institutional adoption, interest from traditional finance professionals, and broader acceptance are all positive developments over the past two years. I believe Bitcoin will play a meaningful role in the future. However, we cannot ignore that persistent volatility causes short-term stress for holders, and Bitcoin has not yet achieved the status of a dependable store of value.
As a curiosity, I examined monthly returns for the S&P 500 versus Bitcoin from 2013 onward to observe how correlation has evolved. Since the start of the COVID crisis correlation strengthened considerably (2020 in particular showed high correlation driven by the Fed’s stimulus). Before 2019 correlations were erratic as Bitcoin searched for mass adoption. There is no consistent pattern yet.
One day macro shocks like the ones seen in the past 24 hours may trigger safe-haven inflows into Bitcoin, lifting it by a percent or two. Bitcoin could grow more stable, become a recognized safe asset, and cease to generate headlines every time markets wobble. If that happens, I might write fewer pieces about it — perhaps even risk being out of a job. But that decoupling from other risky assets hasn’t occurred yet, and recent days are further proof. Bitcoin needs to become more… boring.
In conclusion, perhaps PlanB (creator of the Bitcoin Stock-to-Flow model) put it succinctly in a tweet: