Is Bitcoin going to be the best hedge in the upcoming financial crisis?

[truehedge]

When a huge global financial crisis happens it just happens to everyone, there is absolutely no way of running from it.

Stocks will fall, crypto will fall, gold will fall, house value will fall. There will be nothing that will profit you at the time of an economical crisis, you will lose money no matter what you are invested into. There is no running away from this at all. Hence there is absolutely no way of profiting neither.

That's not true - if you look at the graphs Gold was 1 month in red but then it run like crazy.

Just to clarify - I'm not looking for an instrument that will 100 % shield me from any loss period I'm looking at something that will not stay ridiculously low for say more than 3 months when there is blood in the streets.

[kelz1]

It is a good theory that bitcoin as a digital form of gold would be used to hedge against the impending financial doom, but bitcoin seems to follow the same patterns as regular trading markets, so if those fall then bitcoin is also likely to fall

[BitHodler]

Just to clarify - I'm not looking for an instrument that will 100 % shield me from any loss period I'm looking at something that will not stay ridiculously low for say more than 3 months when there is blood in the streets.

You are asking for input that no one here can provide. It's all up to you to take that risk, because even if we all largely agree that x asset will be doing fine during difficult times, it may still dump just as hard as the rest of the assets.

It wouldn't surprise me if we end up going through a time where assets dumps simultaneously and there is no safe haven at all. There is not much you can do to weapon yourself against that.

My personal hedge is strictly Bitcoin. I accept it completely if it ends up doing the opposite of what I expect it to do during difficult economic times. Maybe that real estate can be added to that later on, but who knows.

[The Sceptical Chymist]

I can't speak for US treasuries as I don't understand them that much let alone understand why would anyone invest in anything that does not even cover (real) inflation which in my opinion is about 7 - 10 % per year depending on where you live and things you buy.

Yeah, inflation does depend on those things.  In the US where I live, and for the things I buy, inflation is nowhere near 7-10%.  Inflation hits some goods & services more so than others, and the data the US government gives is based on a "basket of goods" if I'm not mistaken, and it certainly doesn't measure everything that's bought or sold.

Anyway, if your investment doesn't at least keep up with inflation then you're obviously losing money.  One of the facts that precious metals hucksters keep repeating over and over is that a silver quarter can still buy a gallon of gas and therefore silver is the best hedge against inflation.  Do I believe that?  Absolutely not, though I don't think it's a horrible idea to buy some metals right now.  They've taken a serious beating since 2011 and may go up again if any sort of crisis hits.

Bitcoin, though?  Come on, I couldn't think of a worse inflation hedge, even at the price it's selling for right now.  Why?  Because any safe-haven, inflation-hedging asset should not be as volatile and prone to bubbles and crashes like bitcoin is.  It may be an excellent way for a trader to make money from, assuming that the price appreciates in the long- or short-term, but there's no way I'd feel safe using it as a hedge.  It's around $3400 as I write this, and it could drop to $1000 by tomorrow morning for all I know.  There's too much uncertainty and too much volatility, and traditional inflation hedges lack those two features. 

Even though I don't buy into the propaganda the gold & silver permabulls keep promulgating, I agree with their point that neither metal is going to drop to zero, since both have actual real-world uses.  Bitcoin probably won't drop to zero, but there's more of a chance of it doing so than metals--or even stocks with solid companies behind them for that matter. 

I'm hoping that this discussion turns out to be pointless and that we're not staring down a global economic crisis, but I do feel the bad vibes that are going around and I do get the feeling that something bad is going to happen.  I can already see some of it in the stock market, though I've been expecting a major correction for quite some time now.  For bitcoin, I'm hoping 2019 turns out to be a better year than this one.

[truehedge]

Just to clarify - I'm not looking for an instrument that will 100 % shield me from any loss period I'm looking at something that will not stay ridiculously low for say more than 3 months when there is blood in the streets.

You are asking for input that no one here can provide. It's all up to you to take that risk, because even if we all largely agree that x asset will be doing fine during difficult times, it may still dump just as hard as the rest of the assets.

It wouldn't surprise me if we end up going through a time where assets dumps simultaneously and there is no safe haven at all. There is not much you can do to weapon yourself against that.

My personal hedge is strictly Bitcoin. I accept it completely if it ends up doing the opposite of what I expect it to do during difficult economic times. Maybe that real estate can be added to that later on, but who knows.

To be honest I'm also hedging with Bitcoin (BTC) but I was hoping somebody will come with some solid argument that the US treasuries, Gold or something I have never heard of will be the winner and support it by some solid reasoning.

That didn't happen [yet] but thank you for sharing your thought.

[truehedge]

I can't speak for US treasuries as I don't understand them that much let alone understand why would anyone invest in anything that does not even cover (real) inflation which in my opinion is about 7 - 10 % per year depending on where you live and things you buy.

Yeah, inflation does depend on those things.  In the US where I live, and for the things I buy, inflation is nowhere near 7-10%.  Inflation hits some goods & services more so than others, and the data the US government gives is based on a "basket of goods" if I'm not mistaken, and it certainly doesn't measure everything that's bought or sold.

Anyway, if your investment doesn't at least keep up with inflation then you're obviously losing money.  One of the facts that precious metals hucksters keep repeating over and over is that a silver quarter can still buy a gallon of gas and therefore silver is the best hedge against inflation.  Do I believe that?  Absolutely not, though I don't think it's a horrible idea to buy some metals right now.  They've taken a serious beating since 2011 and may go up again if any sort of crisis hits.

Bitcoin, though?  Come on, I couldn't think of a worse inflation hedge, even at the price it's selling for right now.  Why?  Because any safe-haven, inflation-hedging asset should not be as volatile and prone to bubbles and crashes like bitcoin is.  It may be an excellent way for a trader to make money from, assuming that the price appreciates in the long- or short-term, but there's no way I'd feel safe using it as a hedge.  It's around $3400 as I write this, and it could drop to $1000 by tomorrow morning for all I know.  There's too much uncertainty and too much volatility, and traditional inflation hedges lack those two features. 

Even though I don't buy into the propaganda the gold & silver permabulls keep promulgating, I agree with their point that neither metal is going to drop to zero, since both have actual real-world uses.  Bitcoin probably won't drop to zero, but there's more of a chance of it doing so than metals--or even stocks with solid companies behind them for that matter. 

I'm hoping that this discussion turns out to be pointless and that we're not staring down a global economic crisis, but I do feel the bad vibes that are going around and I do get the feeling that something bad is going to happen.  I can already see some of it in the stock market, though I've been expecting a major correction for quite some time now.  For bitcoin, I'm hoping 2019 turns out to be a better year than this one.

Well not sure if you meant that it's actually higher or lower but if you look at thing like Chapwood Index, Big Mac index or M1 Money supply with data provided by FED (https://fred.stlouisfed.org/series/M1) you will quickly realize it's at least 7%.

I agree with the argument that the metals will probably never go to zero but at the same time I strongly believe that it's days as future go-to store of value are numbered because of its limited portability.

[deppil]

When a huge global financial crisis happens it just happens to everyone, there is absolutely no way of running from it.

Stocks will fall, crypto will fall, gold will fall, house value will fall. There will be nothing that will profit you at the time of an economical crisis, you will lose money no matter what you are invested into. There is no running away from this at all. Hence there is absolutely no way of profiting neither.

That's not true - if you look at the graphs Gold was 1 month in red but then it run like crazy.

Just to clarify - I'm not looking for an instrument that will 100 % shield me from any loss period I'm looking at something that will not stay ridiculously low for say more than 3 months when there is blood in the streets.

When the crisis occurs. almost all commodities experience weakening. which is why many people go bankrupt during a crisis and crypto too. especially crypto including a very sensitive and volatile market. of course the economic crisis will greatly give bad affect to the market

[exstasie]

My personal hedge is strictly Bitcoin. I accept it completely if it ends up doing the opposite of what I expect it to do during difficult economic times. Maybe that real estate can be added to that later on, but who knows.

Real estate is tied so closely with economic health though. With housing prices endlessly rising over the same period that wages are stagnating and growth is topping out, we have to expect a crash to heavily affect real estate, just like 2008. In fact, I think stocks and real estate will suffer the most.

When everyone is losing money (through investments, loss of business, layoffs) the last place people invest money is illiquid assets like houses and multi-unit complexes in an overinflated market that's finally tipping over.

[Tytanowy Janusz]

I agree with the first part of what Tytanowy Janusz said, during crises people are known to stay away from higher risk assets and bitcoin being volatile doesn't help that either so it surely is not the "ultimate hedge" against the financial crisis.

but bitcoin being what it is, has always been acting separate from any other market. for example when other markets are falling bitcoin has been rising in the past or vice versa. it always moves on its own and on top of  that being a global asset it doesn't take effects from local incidents that much.
so in my opinion in case of a financial crisis bitcoin would either not be affected at all or rise at least a little.

I hope to see that but in my opinion we should not look at the past of bitcoin. In 2014 we had mostly nerds without speculation knowledge just enjoing having bitcoin. Now we have lots of high class speculants. Price will act different because different types of investors are  holding bitcoin. We are on unknown waters.

[truehedge]

My personal hedge is strictly Bitcoin. I accept it completely if it ends up doing the opposite of what I expect it to do during difficult economic times. Maybe that real estate can be added to that later on, but who knows.

Real estate is tied so closely with economic health though. With housing prices endlessly rising over the same period that wages are stagnating and growth is topping out, we have to expect a crash to heavily affect real estate, just like 2008. In fact, I think stocks and real estate will suffer the most.

When everyone is losing money (through investments, loss of business, layoffs) the last place people invest money is illiquid assets like houses and multi-unit complexes in an overinflated market that's finally tipping over.

With this one I agree - illiquid assets will be probably the biggest loosers. Some stocks with insane valuations will maybe finally land on Earth (FAANG).

But I suppose person who lost their job will not be investing in anything, they will be buying food and that's about it. It's a good point though I solely assumed a rich person.

[truehedge]

I agree with the first part of what Tytanowy Janusz said, during crises people are known to stay away from higher risk assets and bitcoin being volatile doesn't help that either so it surely is not the "ultimate hedge" against the financial crisis.

but bitcoin being what it is, has always been acting separate from any other market. for example when other markets are falling bitcoin has been rising in the past or vice versa. it always moves on its own and on top of  that being a global asset it doesn't take effects from local incidents that much.
so in my opinion in case of a financial crisis bitcoin would either not be affected at all or rise at least a little.

I hope to see that but in my opinion we should not look at the past of bitcoin. In 2014 we had mostly nerds without speculation knowledge just enjoing having bitcoin. Now we have lots of high class speculants. Price will act different because different types of investors are  holding bitcoin. We are on unknown waters.

I agree that's very good point. So what is your thought - will those new rich individuals buy more or dump crypto?

[timerland]

I completely agree with your points. However, it really depends on the type of crisis that hits, whether hyperinflation, recession, etc.

I think that gold will still be seen as a hedge, if a financial crisis does come. People naturally revert to gold whenever there is financial instability, which could explains why gold prices rose so much post-GFC.

But gold is just too indivisible, too inconvenient, and has a high entry bar for regular investors who want to store their wealth in a safe haven. That's why I also believe that bitcoin will be seen as a feasible alternative due to its convenience, as it is also completely independent from the traditional fiat system in times of crisis.

There might not be huge spikes in price, but its value should hold relatively well in the long run due to its limited supply and detachment from the fiat ecosystem.

[nl247]

Normally, when there is economic or financial crisis, it is a normal thing to see people trying to find a space they can easily get into to hedge their funds, and basically, I would not be surprised to see this as a space a lot of people will want to get into for that reason. However, we still have to understand that this is a new market, so we just have to wait to see how the reaction would be like, but there are so many other ways to hedge, it just depends on which is readily available the most anyway.

[truehedge]

I completely agree with your points. However, it really depends on the type of crisis that hits, whether hyperinflation, recession, etc.

I think that gold will still be seen as a hedge, if a financial crisis does come. People naturally revert to gold whenever there is financial instability, which could explains why gold prices rose so much post-GFC.

But gold is just too indivisible, too inconvenient, and has a high entry bar for regular investors who want to store their wealth in a safe haven. That's why I also believe that bitcoin will be seen as a feasible alternative due to its convenience, as it is also completely independent from the traditional fiat system in times of crisis.

There might not be huge spikes in price, but its value should hold relatively well in the long run due to its limited supply and detachment from the fiat ecosystem.

Yes I also personally see the days of gold as the best hedge numbered for the same reasons as you do. I would be glad if somebody stepped in and convinced us otherwise - assuming it can be done.

[thecodebear]

This is the big question for the next couple of years. Will Bitcoin act as a hedge or will investors dump Bitcoin that they see as their highest risk asset? Will the fact that as the larger economy and stock markets start tanking Bitcoin is bottoming mean that it will be a hedge there aren't a lot of weak hands in it? Will the next crypto boom take place as normal entirely un-correlated to the wider economy and traditional markets over the next 2-3 years? Will the economy keep Bitcoin down for a couple years, delaying the next bull run/boom?

I have no idea. For now I'm assuming the crypto market will continue to operate on its own and we'll see another boom over the next 3 years, even as a recession hits and stocks are getting pounded. I think some people will move from stocks into Bitcoin, some people will drop Bitcoin, and in the end maybe it will be a wash so the next bull run happens as usual. But only time will tell!

[figmentofmyass]

This is the big question for the next couple of years. Will Bitcoin act as a hedge or will investors dump Bitcoin that they see as their highest risk asset? Will the fact that as the larger economy and stock markets start tanking Bitcoin is bottoming mean that it will be a hedge there aren't a lot of weak hands in it? Will the next crypto boom take place as normal entirely un-correlated to the wider economy and traditional markets over the next 2-3 years? Will the economy keep Bitcoin down for a couple years, delaying the next bull run/boom?

the decoupling as the stock market dumped the last couple days was an interesting sight. i have to say, that wasn't my expectation. a short-term divergence from the correlation between stocks and bitcoin, but i'm not sure how much credence to give it.

to some, the market has already entered crash mode based on new yearly lows. to others this is max pain before the market wicks back up and traps bears. if doomsday has really arrived, then i think we'll see the correlation return when the reality sets in that the market is really crashing this time. just like gold in 2008. i'd really love to be wrong though since i keep a lot of my net worth in bitcoin for reasons other than investment.

[1Referee]

Yes I also personally see the days of gold as the best hedge numbered for the same reasons as you do. I would be glad if somebody stepped in and convinced us otherwise - assuming it can be done.

Bitcoin is superior to Gold in almost every way, so there isn't anything people can say to prove otherwise. The only thing however is that most of the traditional farts will very likely continue to ignore all our arguments as to why Bitcoin is so much better. Even when they start to realize that you are right, they will probably never admit it.

In the end, it's not even our problem that they are too close minded and stubborn to admit the usefulness of Bitcoin, because it's their loss if they don't adapt. Bitcoin is less than a decade of age, yet it's covering 1% of all the Gold in the world in terms of market cap. I'm pretty certain that within 10 years we should be able to see Bitcoin climb up to 25% at minimum.

From criminal money to an x trillion dollar asset, not bad.

[Dimas99]

it could happen without anyone knowing in the future because crypto currencies were created using current progress and technology to answer the needs of a growing economy

[tosmartak]

I agree with the first part of what Tytanowy Janusz said, during crises people are known to stay away from higher risk assets and bitcoin being volatile doesn't help that either so it surely is not the "ultimate hedge" against the financial crisis.

but bitcoin being what it is, has always been acting separate from any other market. for example when other markets are falling bitcoin has been rising in the past or vice versa. it always moves on its own and on top of  that being a global asset it doesn't take effects from local incidents that much.
so in my opinion in case of a financial crisis bitcoin would either not be affected at all or rise at least a little.

Asides from bitcoin even being separate from other market, it is still very much new, and what really gave birth to it in the first place was a result of the financial crisis that ended in 2008. How bitcoin would respond to the next crisis is something we will just have to wait to see with time, but I believe one way or the other, among other things, it will serve the main purpose for why it was created in the first place which due to its deflationary features, can serve as an hedge during such period, but time will tell.

[gentlemand]

I think it'll take a poo and remain a poo, however you could take a contrarian view.

If every conventional investment dives towards the ground there'll still be a lot of money looking for a home to do something other than sit there or disappear.

Bitcoin and buddies have flashed potential but certainly haven't fulfilled it yet. Everything else has been established forever in comparison. A cynical whale, and I presume there's nothing other than cynical whales, could initiate a pump and potentially spark a stampede of idle or hurting money looking for anything with a glimmer of growth potential. In addition to collapsing horrendously, crypto can certainly grow violently when it's in the mood.

We always talk about people not taking risks because they have to pay their mortgage. We don't need to give a shit about mortgage paying people. It's the properly deep pockets who'll decide.