Bitcoin fails as a safe haven investment, DIW Berlin study finds
A new study conducted by the German Institute for Economic Research (DIW Berlin) has determined that Bitcoin is not a viable safe haven asset, as its returns closely mirror those of equities rather than exhibiting the stability expected of a financial hedge. In contrast, gold, which has long been recognized as a traditional safe haven, remains largely independent of market fluctuations, making it a more reliable option for diversification and risk management.
The study, led by Alexander Kriwoluzky, head of the Macroeconomics Department at DIW Berlin, and Christoph Schneider, Professor of Finance at the University of Münster, analyzed the monthly returns of gold, Bitcoin, and US and German stocks and bonds over the past decade. Their findings indicate that Bitcoin’s return trends strongly correlate with those of equities, whereas gold’s performance remains unlinked to the fluctuations of stocks and bonds, especially during financial crises. This key distinction suggests that Bitcoin does not offer the same protective qualities as gold in times of economic uncertainty.
Despite Bitcoin’s meteoric rise in value over recent years, its high volatility and unpredictable swings make it an unreliable asset for risk-averse investors. Many still view Bitcoin as an alternative asset class, but its behavior during market downturns paints a different picture. ‘Unlike gold, however, Bitcoin does not provide a safe haven. It moves in tandem with the stock market, often declining when equities fall,’ explains Kriwoluzky. ‘Additionally, Bitcoin’s exchange rate is highly unstable, making it a far riskier investment than gold, which has long been valued as a stable store of wealth.’
Beyond investment concerns, the study also dismisses Bitcoin’s suitability as a currency reserve for central banks. Given its extreme price fluctuations and lack of intrinsic yield, the cryptocurrency does not compare favorably to government bonds, particularly German government bonds, which offer greater stability for diversification and hedging purposes. The debate over Bitcoin as a currency reserve, which gained traction in the United States with endorsements from figures such as Donald Trump and Elon Musk, is found to be lacking a substantive foundation. Schneider emphasizes this point, stating, ‘This discussion was widely adopted in German-speaking regions without critical evaluation, despite Bitcoin’s clear risks and volatility. As a result, Bitcoin is entirely unsuitable as a currency reserve.’
The study underscores the ongoing debate surrounding Bitcoin’s role in modern finance, challenging widespread narratives that position it as a digital equivalent to gold. While its speculative appeal remains strong, Bitcoin does not currently fulfill the role of a safe-haven asset or a stable reserve currency, leaving investors and institutions to reconsider its long-term value in diversified portfolios.
Source: DIW Berlin
