Which asset performed the best during the spread of the Wuhan pneumonia?

The outbreak of the Wuhan coronavirus has triggered global panic and financial turmoil. The U.S. stock market experienced its most severe crash since 2008, and global financial markets plummeted. In such an atmosphere of fear, which safe-haven asset has performed the best?

In traditional financial markets, gold is generally seen as a safe haven asset during times of macroeconomic turbulence. In recent years, Bitcoin has been portrayed as an alternative to gold by cryptocurrency market investors due to its scarcity and fundamental independence from most investment commodities. However, in this global financial black swan event, Bitcoin clearly did not escape the impact of the broader environment, and the reputation of safe-haven assets has been tarnished. To study the performance of safe-haven assets in this black swan event and the response of Bitcoin to the Wuhan virus incident, the data research institution - LongHash, compared Bitcoin, gold, and 10-year U.S. Treasury bonds, two safe-haven assets, to observe the price reactions of each individual product to various single events during this period.

US Treasury Bonds Provide Optimal Hedging

The following chart illustrates several significant events related to the epidemic from January 1 to March 11 this year.

Each asset contains two line charts, one showing the trend from January 1 to March 11 this year, and the other showing the average trend from January 1 to March 11 over the past eight years. During the early stage of the worsening epidemic in China from the first death case in January to early February, the price of Bitcoin showed an upward trend, with a price increase of nearly 40%. After February 15, as the number of new confirmed cases in China gradually slowed down, its trend also gradually returned to the mean.

On March 7, the global cumulative confirmed cases exceeded 100,000, resulting in a total of 3,460 deaths. The price trend of Bitcoin also fell below normal levels, indicating that people's concerns about the epidemic spreading from China to the global level triggered a wave of panic selling. Interestingly, this trend contrasts sharply with the previous trend during the spread in China. Possible reasons include:

1. Chinese investors view Bitcoin as a hedging tool, while Western investors see it as a speculative asset.

2. The trend at that time was merely speculative on the halving market, coupled with the Chinese authorities blocking epidemic news, Chinese investors were not aware of the severity of the epidemic, leading to the misconception that Bitcoin was seen as a hedging tool by Chinese investors.

How did the other two assets perform?

In the case of gold, the opposite situation to Bitcoin can be observed. During the worsening stage of the epidemic in China, there was no significant difference in the price performance of gold. It was not until the first death case occurred in Europe that its price performance significantly exceeded the past average. This indicates that most Western investors may prefer to choose gold as a safe haven.

Throughout the period of epidemic spread, US Treasury bonds were the first to show price reactions and also the best performing hedging asset (the chart shows the yield, which is inversely related to bond prices). After the first case in the US, the yield on US Treasury bonds began to decline and continued to fall until March 7, before rebounding. With the US announcing an unlimited quantitative easing policy, US Treasury bond prices are expected to rise further.

Whether Bitcoin can hedge in the future remains to be seen

It is clear that Bitcoin's performance during the epidemic spread does not qualify it as a hedging asset, but this is more or less related to the high leverage in the cryptocurrency market. After a period of consolidation, the recent price of Bitcoin has gradually decoupled from the securities market, stabilizing and rising, with the US government announcing the implementation of an unlimited quantitative easing policy, Bitcoin may still have the chance to realize Satoshi Nakamoto's original vision.

Further Reading

• Why Did Bitcoin Plummet? We May Need to Reassess Bitcoin's Hedging Attributes
• Did Bitcoin Miss the Mark on Hedging Attributes? A Review of the Counter-Cyclical Rise of Gold in 2008

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