Why This Recession Is Not Bullish For Bitcoin, but For Gold

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The mortgage crisis in 2008.

2008 financial crisis is the worst economic disaster since the Great Depression of 1929. Capital markets are closing and world trade is stalling. The car industry is in heavy weather, construction is no longer being built and the housing market is collapsing. Millions of jobs are being lost. Robust growth turns into heavy shrinkage.

It is interesting to look at the charts of the different investments. The chart below shows the price of gold during the financial crisis that arguably began with the collapse of Bear Stearns in March 2008. During this time, gold prices fell by about 25% and subsequently recovered all losses in a years time. Only in the second half of 2009 did gold prices recover and reached a level of over $1,000 per troy ounce (eventually, the gold price would reach a record high of almost $1,900 per troy ounce in September 2011).

Gold and the 2008 financial crisis

When Silver dropped from $21 to $9 in Oct 2008, below the 2006 lows, the Bull market was dead. Then rallied straight to $50.

Silver and the 2008 financial crisis

On 18 August 2008, the domain name bitcoin.org was registered.
Bitcoin was first traded in 2010. There is no data on how Bitcoin would react in a financial crisis.

The coronacrisis

The 2008 financial crisis started with housing prices falling. The 2020 financial crisis will start because of the coronavirus. In each case it’s the debt bubbles that cause the crisis. But there is one difference, this one will be far worse. Total US mortgage debt is also at an all-time high. Not to sound like a suprise here, but government debt is also at an all-time high.

With the world’s most advanced economies all entering a shutdown that could last months, companies that have lifted on cheap money for the past decade face going out of business thanks to a huge spike in borrowing costs on international money markets. Of course, this is not going to change in this crisis.

The sudden stop of revenue faced by airlines, tourism-related businesses and carmakers make them extremely vulnerable. In 2008 these companies were already helped by the government and they have learned nothing from it. In recent years, they have used the profits to buy their own shares. The biggest bailout is coming soon, the companies have already asked for help.

All we were waiting for was a trigger and unfortunately that has come in the form of a health crisis. Many people still think they can go back to work after 2 weeks of quarantine as if nothing has happend.

The market outlook

Bitcoin will soon become even more scarce. That’s because May 2020 will bring us a Bitcoin halving event. But is this enough to beat the proven record of gold? I don’t think so and this is why.

For years, Bitcoin has widely been considered an “uncorrelated” asset. By and large this has been statistically true. As evidence, by using a statistical method called a Correlation Coefficient, Bitcoin’s price has moved independently of the U.S. S&P 500 for much of its history. If we look at the price changes in 2020, I don’t see it.



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