While cryptocurrencies may have a role to play in financial markets, the World Gold Council (WGC) believes their “behaviour” in an environment of market uncertainty underscores that cryptocurrencies are “not a viable substitute for gold as a safe-haven”.

During the fourth quarter of 2018, cryptocurrencies had a prime opportunity to demonstrate qualities associated with safe havens like gold. However, the WGC warns that cryptocurrencies, such as bitcoin, behaved more like risky assets during the period, which fell while gold rallied.

“Though comparisons have been made, we believe there are several reasons why cryptocurrencies are no substitute for gold. Specifically, gold is less volatile and enjoys a more liquid and established market. It has a well understood role in an investment portfolio and minimal overlap with cryptocurrencies on many sources of demand and supply,” the WGC explains.

As events of late 2018 indicated, the perceived ability of cryptocurrencies to serve as a liquid, safe-haven hedge and store of value in times of market stress, did not hold, the council elaborates, adding that bitcoin’s price behaviour resembled a technology stock as it fell 55% during the quarter, while the Nasdaq Stock Market fell by 19%.

In an investment update published by the WGC on Tuesday, the council pointed out that bitcoin and the Nasdaq were heavily correlated, a factor which the WGC believes had not been apparent prior to the market pullback.

Over the same period, gold rallied 9.4% and was strongly inversely correlated with the Nasdaq at -0.73%.   

Further, the update highlighted that the market value traded in the bitcoin futures market fell sharply in the quarter at a time when volumes in global markets and that gold rose.

“The support of a strong two-way market was lacking, suggesting bitcoin – unlike gold – does not provide the liquidity needed in times of financial tension,” the council says.

While the fourth quarter offered just one data point for bitcoin analysis, it was an important one.

This, the WGC explains, was one of the few periods during which true market stress has occurred since the financial crisis.

“And it should lead investors to reassess their reasons for investing in cryptocurrencies”.