In Troubled Times, Investors Are Turning to Bitcoin Like Gold

At a Glance

  • When an event risk sinks equities, gold’s worth as store of value increases
  • Like gold, investors are increasingly seeking safety in bitcoin as a store of value when an event risk tumbles equities

During geopolitical events, market participants turn to futures and options markets in larger-than-usual numbers to manage the risk posed by the changing investment climate.

The impact of such events can be seen in short-term impacts to prices of equities, particularly E-mini S&P 500 futures. Recent international events like the coronavirus and the U.S. conflict with Iran have shaken equity markets, leading to dramatic, but temporary, drops in the price of E-mini S&P 500 futures.

As equity prices fall, it is common to see a corresponding increase in the price of gold, which is seen as a safe haven and a store of value during market uncertainty. As the market for cryptocurrencies matures, traders have begun to recognize similar benefits from products like CME Bitcoin futures. As a result, Bitcoin futures have been moving in tandem with gold, rising as equities fall during these market events. Significant events affecting equities during January 2020 highlighted the strengthening of this relationship.

Bitcoin Mirrors Gold After Iran News

On January 7, 2020, geopolitical tensions between the United States and Iran intensified. Investors looked to hedge their potential risks by turning to CME futures. In a three-hour span between 3:30 p.m. and 6:30 p.m. Central Time on January 7, E-mini S&P 500 futures fell precipitously while gold futures moved in the opposite direction.

Bitcoin futures responded in tandem to gold futures, with the price increasing as equities tumbled. By the time U.S. traders arrived at the office on the morning of January 8, 2020, equities had recovered and bitcoin and gold prices returned to their previous levels.

This is precisely the kind of event for which traders would be expected to flock to gold to hedge against the drop in equities prices. Indeed, we see gold futures increase in nearly a mirror image of the drop in the E-mini S&P 500. However, this is not the only market traders used to manage the risk. Bitcoin futures saw a very similar increase in the immediate aftermath of the event, showing that traders may be using the product in much the same way they do the gold futures.

January 27 Market Drop

On Monday January 27, equities experienced a significant sell off in response to the outbreak of the deadly coronavirus in China. E-mini S&P 500 futures fell nearly 1% and, as observed earlier in the month, Bitcoin futures moved in the opposite direction, closing more than 4% higher. Again, traders seemed to use Bitcoin futures similar to gold as a store of value to protect against uncertainty and volatility in equities.

During times of market uncertainty, we often see market participants flock to safe-haven asset classes that act as a store of value. Traditionally, traders have used gold and its derivatives to manage their exposures and risks. Recent events suggest that traders are increasingly recognizing similar benefits in bitcoin.

Jesy Beeson is a Director of Business Intelligence at CME Group. Prior to this, Beeson spent nearly six years in clearing and risk management at CME Group and ICE Clear Credit, working in both Chicago and London. She started her career in credit and market risk management at the Bank of Tokyo-Mitsubishi UFJ in New York. Beeson holds a B.A. in mathematics and economics from DePaul University, an M.A. in economics from New York University, and an M.S. in data science from Northwestern University.

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