In this current market climate, where all stocks, commodities, and investments are dropping like flies, the question that many investors want the answer to is — what is the most viable safe haven asset in a time of Covid-19 crisis. It is not only the Coronavirus outbreak that has investors fearful, but it is also the potential financial economic crisis that may follow.
Gold has long been highlighted as the most traditional hedge against falling markets and a true safe haven asset with its anti-correlation and use cases separate from investing. But even this precious mettle failed to prove its potential as a safe haven in the face of the current virus outbreak.
Then there is Bitcoin, which faced a stern test to prove the pundits right that it could be a new age digital hedge for any coming crisis, but it too fell flat and dropped in correlation with the stock market.
So, what is left? What has passed the test to be a safe haven in this current time of financial uncertainty? Well, the good news is, there is something — and it is US Treasury Bonds.
Bitcoin’s run through the virus
Data collected from Longhash has analysed how the different assets have responded through the outbreak, from when it was confined to only China and up until recent times.
“Over the past eight years, Bitcoin has followed an unusual path over the progression of this outbreak. Prior to Feb. 15 worsening levels of the outbreak in China seemed to correlate with wider gains for the price of Bitcoin. After Feb. 15, newly confirmed cases in China started to slow down, and the price premium largely reversed itself within two weeks,” Longhash noted
“After March 7, the price of Bitcoin actually dropped below its usual course, suggesting that concerns over the epidemic spreading to the US caused a wave of panic selling. This is in very sharp contrast to what we saw when the epidemic was spreading in China, which might suggest that Chinese investors viewed Bitcoin as a safe-haven asset, but US investors did not. This is difficult to prove definitively, however,” they added.
Gold follows its own path
It was also noted that gold showed some signs of being a safe haven, but ultimately failed too.
“For gold, we observed the opposite of what we saw with Bitcoin. During the Chinese epidemic phase, gold did not differ from its past performance prior to Feb .15. Afterwards, however, it significantly overperformed. This suggests that different attitudes prevail for gold: US investors, but not Chinese investors, may view it more as a safe haven,” noted Longhash.
When it comes to true safe haven ability in this period of panic, it appears that Bonds are best, as LongHash explained
“What we do know is that the treasury bond market has most unequivocally demonstrated its safe-haven property throughout the epidemic. The graph shows its yield, which is inverse to its price. Treasury yields started to drop around the time of the first case reported in the US, and kept dropping until March 7, when the epidemic worsened significantly in Europe,” they added.