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In the wake of the financial crisis in 2007-2009, a paper was released on the internet by a pseudo anonymous person(s) known as Satoshi Nakamoto detailing a new financial innovation that was an entirely peer to peer electronic cash system. This represented a breakthrough approach to the definition of money that used clever code, cryptography and mathematics to establish a peer to peer marketplace. This cryptocurrency is now known as bitcoin and it is now the largest cryptocurrency by market capitalization current figures. Today, there are 700+ cryptocurrencies in existence and they continue to grow.

On the other hand, before and during the existence of this internet phenomenon, gold has been traditionally viewed as a “safe haven” for investors when there are economic shocks in the global economy. In this paper, I argue that bitcoin can replace gold as the ultimate safe haven investment by attempting to illustrate the similarities in the returns of the bitcoin and gold in a bid to show how similar they are and also show bitcoin is more significantly related to the global macroeconomic events. I will also show the same variables used to determines the future returns of gold can also be used for bitcoin.

Bitcoin is a digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Cryptocurrencies like bitcoin have become widely popular since its invention in 2009 and to date, have been created by private individuals, organizations or firms.

I will argue in this paper that bitcoin is very similar to gold and has features that contribute to its returns that are very similar to that of gold. I will also aim to find the independent variables most responsible for determining returns of this new form of currency with a hope of concluding that it is similar to gold in terms of price fluctuations and as such should also be treated like this commodity as a safe haven for investors to offset risk and the impact of negative economic shocks in their portfolio.

Bitcoin, like gold is now being perceived as a hedge against geopolitical, systemic and monetary risks. The resurgence of gold has largely been due to the increasing demand of India and China and similarly the volatility in bitcoin has been largely due to China. The Chinese are using Bitcoin largely to facilitate capital flight during periods where there are pessimistic outlooks in the domestic economy and in the past 6 months yuan has accounted for 98 percent of bitcoin trading.

To date, online buzz surrounding bitcoin in online media has been understood to be main factor affecting price fluctuations of bitcoin and we argue that this is not entirely the case but it is rather the decline of output in major economies that bring about pessimistic outlooks and uncertainty in the markets that explain its price fluctuations. The dependent variables discussed in this paper are the GDP of USA, European Union, China and any unique external factors that affect the returns of bitcoin and gold.

Like gold, bitcoin is obtained through mining. Whereas, gold is mined through physical mining, bitcoin is mined through virtual mining, a process known as proof of work where miners compete to validate transactions.

Bitcoin has been classified as a cryptocurrency that is a form of digital currency by the standing senate committee on banking, trade and commerce but my paper argues that it is rather an asset that behaves similar to gold in its reputation as a ‘safe haven investment.’ In order for bitcoin to be classified as a currency it must meet the general definitions of money that is, it must be a unit of account, a store of value and a medium of exchange. Bitcoin is arguably a frequent medium of exchange evident by the fact that it is now traded on multiple digital currency exchanges and is accepted by 150,000 merchants worldwide including expedia and also a unit of account in that bitcoin is completely divisible as medium of exchange.

However, it is mainly obtained by buyers for speculative purposes and not commerce like fiat money. It is for this reason that I argue it is an asset or commodity and its properties are a lot similar to that of gold in the way it is traded and now used by seasoned investors in their portfolios as a way to offset risks in moments of declining stock prices, negative economic shocks and global pessimistic macroeconomic forecasts.

Bitcoin Vs. Gold

Bitcoin and Gold do share some similarities in how they are perceived and function as a medium of exchange. Some of them are:
. They are both susceptible to ‘irrational exuberance.’
. They are both not immune to international movements in markets
. Both gold and bitcoin function as an intermediary means of exchange-value storage.

However, there are advantages that illustrate why Bitcoin could replace gold as the ultimate safe haven investment and these included and are not limited to:

. Bitcoin is difficult to steal as there is not only no central location to store your bitcoins ( as with gold) but it is also distributed through a decentralized protocol where there is no central location holding a significant number of bitcoins.

. There is also no need to carry bitcoin around as it is not a physical asset and also gold’s weight and value make it difficult to transport around.

. Bitcoin can also be used for micro-transactions, while gold isn’t used as a currency anywhere in the world.

. Bitcoin has a limited supply, while gold still has to be mined with more gold still in the ground yet to be discovered.

. Bitcoin is easier to verify and its network verifies transactions every 10 minutes whilst the United States gold reserve for example has not been verified since 1950.

. Bitcoin makes it almost impossible to be exposed to forgery and counterfeit due to validation system in the network that has solved the ‘double spend problem’ that also make it impossible to introduce counterfeit bitcoins into the network as accepted means of value.

. The annual cost of mining gold is $105 billion while mining bitcoin costs $0.79 billion.

. Bitcoin is even more sustainable for the environment as production of gold produces 54 million metric tons of CO2 while mining Bitcoins only produces 0.6 million metric tons.

. Gold production incurs over 100 deaths every year while the nature of mining for Bitcoin means there are zero deaths.

I reviewed three pieces of literature for the emerging study of this new technological and economic phenomena, bitcoin and the main drivers of its returns. The first paper reviewed is, ‘ Bitcoin - Asset or Currency? Revealing Users’ hidden intentions.’ 3 The paper assesses what the intentions are of the users of Bitcoin when acquiring the cryptocurrency. Also, whether their interests regarding Bitcoin are driven by its appeal as an asset or a currency.

They go on to conclude that the Bitcoin users are not really interested in an alternative transaction system but rather an alternative investment vehicle. They prove this by showing that new and uninformed users joining the Bitcoin community obtain this new cryptocurrency mainly as an asset as there is no observation of a similar growth in exchange and network volumes driven by new customers. It supports the theory of this paper that bitcoin is being acquired as an asset with its own reasons for appeal and not as a medium of exchange that has been previously thought in earlier literature.

The second paper is, ‘What are the main drivers of the bitcoin price? Evidence from the wavelet Coherence Analysis.’ 2 They contribute to the discussion of this fascinating phenomenon by examining the potential drivers of Bitcoin prices and their returns. They go on to find that bitcoin forms a unique asset possessing properties of both a standard financial asset and as a speculative one. They focus on various possible sources of price movements, ranging from fundamental sources to speculative and technical sources. They even go further by showing how these two intersections behave in time and also at different scales(frequencies) by using a continuous wavelet framework that can be generalized for a bivariate case to study the relationship between two time series in time and access scales.

The paper also assesses whether bitcoin is a safe haven by examining its relationship with the Financial Stress Index (FSI) and the gold price in Swiss francs, of which was commonly thought to be the ultimate safe haven. Swiss francs is also noted as being chosen as it is viewed as a stable currency. They find out increasing FSI leads to bitcoin prices rising. They also illustrate that there appears to be no relationship between gold and bitcoin but do support the theory proposed in this paper that gold does not seem to be the ultimate safe haven investment it once was. The paper also supports my theory of a strong correlation between bitcoin and China by showing that it is regulation and dramatic events in the Asian country that coincide with the price fluctuations of bitcoin.

In the third literature used, ‘Statistical Analysis of the Exchange rate of bitcoin,’ 4 the paper provides a statistical analysis of the log returns of the exchange rate of Bitcoin versus the United States dollar. Bitcoin returns are also claimed from the paper to be driven ‘solely by investors faith in perpetual growth,’ a statement that supports my claim that this speculative asset is susceptible to mainly irrational exuberance and thus perceived by users as mainly a speculative asset than a currency. It is also indicated that few people today use bitcoin as a medium of exchange with the international use of it still very limited.

By also analyzing the exchange rate of bitcoin to United States dollars using fifteen of the most parametric distributions in finance they conclude that bitcoin returns are not only very high but also increased in the past 24 months more than 50 fold. The paper also notes that the exchange rate of bitcoin to USD behaves very differently to the exchange rate of other major currencies which further supports my data where bitcoin has the highest measure of degree af any linear relationship studied across the different independent variables. Their data is collected from the Bitstamp bitcoin exchange for the reason that this exchange had significant relative trading volume.

In this paper, I argue that the returns share the same trajectory with similar independent variables affecting the returns of both gold and bitcoin. We model this by recording the returns of both gold and bitcoin over the designated period and measure the effect of the independent variables on the returns of gold and bitcoin to asses the similarity in significant factors affecting the returns of both gold and bitcoin.

This is done to demonstrate bitcoin’s ability to replace gold as a safe haven investment due to its similar characteristics to gold in terms of it price fluctuations and performance as an asset class. The returns are measured as (Pricet - Pricet-1 )/Pricet and measured quarterly over the designated time period.

The first dependent variable measured is gold( y1) and the independent variables are the quarterly GDP of the United States (x1), GDP of the European Union (x2) and the GDP of China (x3). Although, the independent variables are similar the second dependent variable is the cryptocurrency bitcoin( y2).

We are hoping to find a negative relationship between gold and the independent variables and also a p value that demonstrates an insignificance of these independent variables on the returns of gold. This will mean that the claim that gold is a safe haven investment as has always been thought to be the case may not be sound judgement. The paper also hopes to show the significant relationship between bitcoin and the independent variables.


The aim of this paper is to demonstrate bitcoin can replace gold as the ultimate safe haven investment and we will do this by showing a high correlation between GDP of the largest economies and bitcoin. Also, i will attempt to show that the measure of the degree of linear relationship between the variables is stronger for bitcoin than for gold. Therefore, bitcoin has a much stronger relationship with the GDP of the major economies and a lot easier for investors to predict the returns of this new asset class when correlated with the independent variables. The results can be found below with discussion to follow suite.

The econometric relationship between these variables can then be described as:

Gold = - 0.045622GDP US + 0.0502112GDP EU - 0.0331132GDP China + 0.0814182

Bitcoin = -0.5887499GDP US - 0.2195807GDP EU + 0.3622967GDP China + 0.1337126

Therefore, we now want to discuss each independent variable and its relationship with the dependent variables to assess the theoretical framework proposed.

GDP United States of America

We can see that gold’s returns have a negative relationship with the GDP of US of which was expected as gold is seen by investors as a safe haven and thus the demand for gold rises during periods of declining economic growth. This means that as the GDP of US declines each quarter the price of gold will rise and as a results the returns from gold will also increase. When the GDP of US increases per quarter or is expected to increase the price of gold and its returns also decrease. This is because as we can ascertain from economic literature investors view gold as an investment vehicle to offset the declining value of the stocks and other asset classes that might be exposed to the declining economic growth in their portfolio. Gold also has a correlation with the GDP of US with a p value that is insignificant as expected so the economic shocks in the US might not be affecting the returns from gold of which questions its status as a safe haven investment.

Bitcoin is also negatively related to the GDP of US that demonstrates the similarities in the nature of their fluctuations as an asset class with that of gold. There is a really strong correlation and a high level of significance between bitcoin and the GDP of the US. This is evident by the p value that.demonstrates the stronger linear relationship between bitcoin and the GDP of US than that of gold. This means the independent variable, GDP US is a better predictor of the price of Bitcoin and as such the expected returns will better reflect the expectations of a safe haven investment and lead to a better fundamental pricing methodology for investors.

GDP Europe

The GDP of the European Union has a positive relationship with gold of which the theoretical framework of this paper did not expect. This could be because investors in Europe do not view gold as an asset class to offset any negative economic shock. The p value is also insignificant and as such we cannot conclude that the positive relationship illustrates an increase in returns in gold with an increase in overall output in the European Union.

The returns of bitcoin however, are as the paper suggested and also expected whereas you have a negative relationship between the two variables. The coming to fruition of this expected linear relationship between bitcoin and gold is not evidence of why it serves as an already better or preferred ultimate safe haven investment for the major economies globally even though a negative economic shock could have a positive effect on the returns of bitcoin. This is because the p value means is insignificant and this negative relationship should then not be taken as certainty that any movements in the output of the EU will affect the returns from bitcoin.

GDP China

The last but not least in the study of the independent variables and their relationship to the alternative safe haven investments bitcoin and gold also has a mixed bag of results. The GDP of China is negatively related to the to the latter latter and its reputation as a safe haven therefore on this instance does precede itself. It should be noted though that the correlation of gold with the three independent variables is of the highest insignificance between this outdated but valuable asset class and China’s GDP.

Bitcon on the other hand and its relationship to the GDP of China does not precede itself. An investor should be cautious when suggesting Bitcoin as a safe haven investment by comparing it to the domestic output of China. This positive relationship is also insignificant evident by quickly noting the p value between Bitcoin and the third independent variable ( x3) . This could be evidence that bitcoin could be behaving like most asset classes that have increasing returns with a positive economic shock. One explanation of this unexpected result is that Bitcoin is rather viewed as a payment protocol and a medium of exchange by the Chinese.


In conclusion, we find that the data and results show that bitcoin returns and the US GDP is the only significant relationship. Therefore, investors should be hawkish on US GDP if they are to estimate the returns to be realized from acquiring bitcoin as a safe haven investment. Bitcoin however, does not seem to have a significant relationship with the GDP of the EU and China therefore if any attempt is to be made to predict returns from bitcoin then the economies of China and the European Union should not be a major factor.

Therefore, investors should begin to replace bitcoin as a safe haven investment replacing gold as the ultimate safe haven investment. This is because they can better analyze and predict the returns of this cryptocurrency as a safe haven during any global economic shocks by tracking the performance of the American economy.


Nakamoto S. Bitcoin: “A peer-to-peer electronic cash system.” 2009

Kristoufek L. “What are the main drivers of the Bitcoin price? Evidence from wavelet coherence analysis.”2015

Glazer, Zimmerman, Haferkorn, Weber, Siering. April 15, 2014. “Bitcoin - Asset or Currency?”

Chu J., Nadarajah, S. Chan, (2015), “Statistical analysis of the Exchange rate of Bitcoin.”

Alec Liu. (2013), “Why Bitcoins are just like Gold.”

Glantz, Dilley (October 7th, 2014) “Gold vs Bitcoin as a Store of Value.”

Stanley, April 1, 2017. “ Bitcoin vs. Gold: Which is a better long-term bet?”

Gerstein, Hervieux-Payette, ( June 2015), “Digital Currency: You Can’t flip this coin!” Report of the standing senate committee on banking, trade and commerce.

Wang S, Vergne J-P( 2017) “Buzz factor or Innovation Potential: What Explains Cryptocurrency Returns?”

Sykora, (2014) “Bitcoin: Financial Innovation burgeoning into a new form of currency.” Western Undergraduate Economics Review.

Hayes( 2016), “Is Bitcoin being used for Chinese capital flight.”

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