Bitcoin is not the New Gold: Evidence from the Covid-19 Pandemic

Abstract: The recent market turmoil, caused by the Covid-19 pandemic, has negatively influenced the financial markets all over the world. Therefore, the search for safe haven assets by investors is of great importance. In this area of research, gold has for a long time been considered to be the traditional safe haven asset. However, recent literature states that Bitcoin is the new gold. Whether this is the case, and whether gold still has the ability to act as a safe haven, is of essence in this current time period. The aim of this paper is to investigate the similarities between Bitcoin and gold and foremost to see if Bitcoin can be considered as the new gold. Moreover, a comparison is conducted with other established asset classes. First, different ARCH models are used to study the volatility behaviour of the assets. Secondly, a dynamic correlation analysis is performed in order to study the correlation between the assets and stock indices. Finally, a portfolio analysis is done in order to examine the hedging properties of Bitcoin and gold. The results show that Bitcoin is neither a hedge, nor a safe haven, during the recent time period which is influenced by market distress. Bitcoin does, however, show diversification benefits. Moreover, the results confirm that gold has hedging properties and acts as a safe haven during the recent market turmoil. Furthermore, while Bitcoin and gold share some similarities, the conclusion is that Bitcoin does not fulfil the essential requirements to be named the new gold.