With Gold and Fixed-income Pushing New Highs, Is Crypto The Volatility Play Of 2020?

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

While the final days of January proved to be a wild time for asset markets, perhaps the most fascinating consequence of this swell in volatility is playing out in cryptocurrency price charts. As equities, fixed income and even gold have all run up against record high valuations, cryptocurrency seems to be the one area of the market with room to run.

A Top-Heavy Market

Overall, cryptocurrencies have experienced a bullish environment similar to the one that has gripped the equity market in recent months. The price of bitcoin was up more than 25% through January and ethereum was close to topping 40% on the month.

Cryptocurrencies experienced their best run near the end of the month when stock traders were swept up in a multi-day selling spree that tanked major indexes like the S&P 500 and Dow Jones Industrial Average by as much as 2% in a single day. Meanwhile, bitcoin and ethereum both rose roughly 15% while litecoin gained more than 30% in that same span, a pace that has continued into February to push the coins to multi-month highs.

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What’s interesting is that although the fear-induced trading also bolstered the price of government bonds and caused the yield for ten-year treasuries to fall below that of three-month notes, the move was muted compared to previous fear-induced jumps. A similar picture played out in the precious metals market as well, with the price of gold only moved a little over 1%.

Is There Safety In Crypto?

With precious metals and fixed-income investments all sitting at or near multi-year highs, these safety assets are becoming a less compelling hedge for these kinds of short-term market tantrums. In turn, the recent sympathy moves in the major digital currencies could mean they are beginning to trade as a pure volatility play while other safety assets bounce around at the top.

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This comes with some obvious caveats. For starters, cryptocurrencies haven’t typically moved inverse to the broad market in times of heightened volatility, instead often moving in tandem with the equity market. As a result, traders should scrutinize how cryptocurrencies trade against other market events before anticipating a volatility-induced spike in bitcoin.

Finally, crypto is still one of the more volatile assets out there for traders and is by no means a safety asset. However, the recent bull move in major cryptocurrencies could be the start of an interesting market dynamic between crypto and equities. As other assets hit new high-water marks, cryptocurrencies may be the only asset left with room to run.

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The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.