The mad rush for Bitcoin: Is BTC truly a hedge against economic fluctuations?

Bitcoin has proved its resilience so far this year. However, the actual test for BTC will be the baptism of time. Gold has proved to be one of the safest assets over several years.

Financial markets around the world reached staggeringly low levels in the past few months. The Coronavirus pandemic left a deeper scar than the Great Recession of 2008, or the Great Depression of 1929. 

Most of the top indexes are at levels at which they were three years back. With industries being forced to pause operations and factories getting shut down, this year is going to witness close to 0% growth.


Where does Bitcoin stand amid the pandemic?

Bitcoin had the most auspicious phase this year. The BTC halving or halvening, as it is known in some places, occurred on May 12. This event takes place every four years. The last halving in July 2016 increased the value of BTC by a whopping 3000%.

We placed the daily returns of BTCUSD and compared that with the Dow Jones Industrial Average Index from Jan 1, 2020, till now. At the current levels, the Dow posted a negative return of 14.67%, whereas BTC posted a positive return of 35.71% during the same period.

It indicates that despite the pandemic and the economic downturn, Bitcoin managed to gain superior returns.


Is Bitcoin truly a hedge against such situations

Billionaire hedge fund manager, Paul Tudor Jones, commented that having Bitcoins in one’s portfolio would shield one from such risks. Following the comment, there was an influx of institutional as well as retail investments in Bitcoin. Some even went to the extent of comparing BTC with the precious yellow metal, the Gold!

However, before jumping into any conclusion, it is essential to understand that Bitcoin is a highly volatile instrument. It has zero commercial usage currently, and it may completely erode the capital because of its highly unpredictable nature.

Bitcoin investments are to be done with a long-term view in mind. The phrase,

Don’t put all your eggs in one basket,”

is apt for any investments.

Similarly, Bitcoin should be a portion of the portfolio.

It should not be the entire portfolio!


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