Published: April 12th, 2023
The robots look to have picked a side in the years-long argument over gold versus Bitcoin as a safe-haven investment. Financial guru and investor Peter Schiff has praised the ChatGPT AI engine for reportedly selecting the yellow metal. ‘It seems AI is pretty smart after all,” he tweeted on Tuesday. ‘In the portfolio challenge we posed, the generative text engine recommended a zero allocation for Bitcoin.’
Schiff was referring to a report from the week commencing 3rd April that detailed how ChatGPT might be used to create a ‘recession-proof’ portfolio. Published in Gold IRA Guide, the report said ChatGPT suggested a 20 per cent allocation to gold (and other precious metals) to offset the impact of a market downturn in any one asset.
The remainder of the AI’s hypothetical portfolio comprised a 40 per cent allocation to bonds, a 30 per cent allocation to stocks, and a 10 per cent allocation to cash. Bitcoin, and digital assets generally, didn't make the cut.
It’s worth noting that most of the financial data ChatGPT was trained on comes from 2021, and likely misses out significant movements up and down that BTC has experienced since.
Both gold and Bitcoin bulls are winning big in 2023. Each asset is up, though gold has seen a 10 per cent bump while BTC is up 67 per cent for the year to date. Gold, on the other hand, recently crossed a multi-year resistance level of USD 2,000 per ounce, which Schiff said in another tweet could now be the 'liftoff for a moonshot.’
In October of 2022, there was evidence major investors were looking at Bitcoin as a safe haven asset, following a period of gold-price market correlation.
Analysts at Bank of America Securities (BofAS) published a report saying that the world’s number one cryptocurrency had been tracking gold prices for an extended period, strongly indicating that investors had been using it as a hedge against market volatility.
To be considered a safe-haven, a financial asset must be able to shield portfolios from steep losses during an economic downturn. That requires them to be uncorrelated or negatively correlated from trends in the wider economy. Gold has traditionally played this role, providing a sturdy store of value in times of trouble.
The relationship between BTC and gold has historically been used to measure investor confidence in Bitcoin’s store-of-value credibility. Both moved broadly in parallel between June 2021 and March 2022. There was always a level of deviation, but the correlation turned negative in April.
If two or more assets demonstrate a positive correlation they can be assumed to be responding to the same market stimuli. If they demonstrate a negative correlation, then the opposite is likely true.
At the end of August 2022, the relationship between gold and BTC returned to positive, while in early October 2022 the correlation wound even tighter, touching the highest point in twelve months.
Within that period, Bitcoin’s relationship to the S&P 500 and Nasdaq 100 indices of blue-chip equities also reached all-time highs, though BoAS analysts say that correlation has begun to slip in the last fortnight.
'A slowing positive correlation with blue chip stocks and a quickly rising correlation with gold tells us that investors have started looking at bitcoin as a relative safe haven to shield portfolios from macro uncertainty and wait for the market bottom to materialise.’
In mid-October, new data showed that Bitcoin had become more stable than both the Nasdaq and S&P 500 for the first time since 2020.
While the crypto asset class has a well-earned reputation for volatility, other trends identified last Autumn suggested that Bitcoin had altered perceptions further by settling into a period of calm.
Data released in late September 2022 found that BTC's 20-day volatility had followed the peaks and troughs of the Nasdaq stock index for the first time in nearly two years. While Bitcoin’s price had been more or less the same since the beginning of September, both the Nasdaq and the S&P 500 had fallen by ten per cent through the same period.
Bitcoin’s price has historically been correlated with technology stocks, though with a higher propensity for volatility than other assets. Despite the impressive gains posted in 2021, its high beta rating had previously kept many investors from relying on it as safe-haven asset.
Its price did fall back to lows last seen in 2020 in the first week of October 2022, after core US inflation topped another 40-year high. Both BTC and stock prices fell on the news before returning to their previous ranges.
BTC did experience a drop in June 2022 after the release of consumer price index (CPI) data which showed core inflation rising at a worrying rate of 8.6 per cent. Investors took it as a signal that the US Federal Reserve wouldn’t be altering its aggressive monetary policy course any time soon, prompting a risk-off move that shifted money away from riskier assets.
However, while high inflation held firm for months, crypto’s price action didn’t surge or plunge (as it might have previously) with subsequent CPI prints. Stocks, on the other hand, went into a slow-but-steady decline.
Bitcoin moving into stability mode was all the more notable against the hawkish stance taken by central banks worldwide, which had turned many bonds into an opportunity for rapid gains. Reuters noted that treasury market volatility has been much higher than Bitcoin volatility in the third quarter of 2022. At the time, volatility in stock prices hit all-time highs when compared to price moves for Bitcoin.
With global assets demonstrating weakness against the dollar, even the United Nations asked the Fed to ease off on further rate rises.