News that Russia invaded Ukraine overnight was shocking and makes writing about finance this afternoon feel almost trivial. I hope the people of Ukraine remain safe. Personally, it’s hard to believe that in 2022 we are witnessing war in Europe — it is a sad moment.
That said, looking at financial markets, volatility has understandably surged over the past 24 hours. In this piece I want to highlight one particularly interesting observation: Bitcoin’s price behavior compared with other major assets. One of the most persistent narratives in crypto is that Bitcoin is a hedge:
• That Bitcoin provides an effective inflation hedge, protecting against fiat currency debasement
• That it is “digital gold” and therefore can improve portfolio risk-return characteristics alongside equities
I want to focus especially on the latter in the context of the last 24 hours.
Market impact
Putin declared war — how did markets react?
• Stocks: The S&P 500 fell roughly 2.8%, the Stoxx 600 European equity index dropped about 3.5%, and the Nasdaq fell nearly 3%. That reaction was expected — nothing surprising.
• Gold: Commodities touched a 17-month high, with gold rising about 1.5%. Gold performed well as a safe-haven, which is not unusual.
• Bitcoin: Bitcoin markets have long touted the asset as digital gold and a hedge. With a crisis and falling equities, this was the moment for Bitcoin to prove itself. The result? A roughly 7% drop.
Returns for gold (black), the S&P 500 (blue), and Bitcoin (orange) over the past 24 hours, via BarChart.com
Correlation —> 1
In a crisis, correlations often move toward 1 as investors flee to quality. People reduce risk and prefer to hold safe assets, with cash the clearest example. Gold has long been seen as a safer store of value. The events of the past 24 hours show Bitcoin has not yet behaved as a true safe-haven. Volatility and crypto seem inseparable — like peanut butter and jam — and until Bitcoin’s standard deviation falls, its bid to become a reliable store of value will remain unfulfilled.
In other words, Bitcoin is still the apprentice compared with gold. With recent 30-day volatility for Bitcoin near 3.36%, it’s unsurprising that investors stepped away during turbulent times. To be clear, this does not imply gold is a better investment than Bitcoin overall — I use the term “apprentice” loosely. Personally, I remain unconvinced by gold as a core holding given its low realized returns over the past decade (sub-5% since 2011), which made it an expensive opportunity cost. But this discussion is about hedge properties, not expected returns — and Bitcoin failed to hold value during a market downturn.
Gold remains above its 2011 peak only, via BullionVault
Maturity
One point we must not forget (and I’ll repeat this) is how young Bitcoin is — it was launched in 2009. Mainstream adoption has exceeded even the wildest dreams of crypto enthusiasts. Still, people are intolerant of extreme volatility. Is it reasonable to expect a widely accepted store of value to be fully established in less than two decades? Gold’s reputation took millennia to develop: civilizations discovered the appeal of its lustrous properties thousands of years ago. Do you think Egyptian pharaohs in 1200 BCE were crafting jewelry from Bitcoin? Did Hernán Cortés admire blockchain technology’s shine in the 16th century?
So while Russia’s march into Ukraine shows Bitcoin is not yet a widely trusted store of value, that should not surprise anyone. In times of declared war, cash and gold look more appealing than crypto — you don’t need complex analysis to reach that conclusion.
Precedent
Consider March 2020, when the COVID-19 pandemic erupted and shook markets. That shock was, in many ways, more extreme than last night’s invasion: the S&P 500 experienced some of its worst daily losses (-12.0% and -9.5%) across two days in a single week. Bitcoin, by contrast, plunged more sharply in dollar terms, roughly halving from $7,900 to $4,100. As my roommate used to say: once you’re in crypto, stocks start to feel… boring.
Bitcoin chart during the COVID market crash, March 11–13, 2020
Progress
Since March 2020 we have seen institutional adoption of Bitcoin advance: BTC was added to corporate balance sheets, recognized as legal tender in El Salvador, frequently covered by mainstream media, and it once exceeded a $1 trillion market cap (before this year’s decline). Yet steep drawdowns have remained common:
• May 2021: $58,000 to $33,000
• Sep 2021: $53,000 to $41,000
• Nov/Dec 2021: $68,000 to $33,000
So today’s pullback barely scratches the surface by historical standards — real-world events continue to produce volatile moves. The May 2021 drop felt almost random, and crypto was simply being crypto.
The future
Let me be clear: I believe in Bitcoin over the long term. Institutional progress, sophisticated market participants transitioning from trading to acceptance, and broader mainstream coverage have all been remarkable developments in the past two years. I think Bitcoin will play an important role in the future of our society. That said, the reality remains that current volatility causes short-term concern, and Bitcoin has not yet achieved an undisputed store-of-value status.
Out of curiosity, I ran correlation figures on monthly returns for the S&P 500 versus Bitcoin back to 2013 to observe how the relationship has evolved. Since COVID-19 the correlation has been relatively strong (particularly in 2020, a period of strong upward markets fueled by Fed liquidity), while before 2019 the relationship was more variable as Bitcoin searched for mainstream traction.
There may come days when negative macro events like those of the past 24 hours drive Bitcoin up 1% or 2%, and perhaps Bitcoin will one day become less exciting, more “boring,” and behave more like a safe asset. If that happens, I’ll have less to write about — which could be bad for my job prospects. For now, however, Bitcoin has not decoupled from other risky assets, and the last 24 hours further confirm that Bitcoin must become… a lot more boring.
In closing, perhaps Plan B (the builder of the Bitcoin stock-to-flow model) could sum this up more succinctly in a tweet.