In a market crisis, investors should consider safe-haven investments to protect their portfolios. In an era when gold has underperformed for years, bitcoin, the digital currency, might be one answer.
Are markets in crisis? Some financial gurus like George Soros believe its 2008 all over again. While it's probably too early to tell, to Soros' point, the dramatic moves in certain assets mimic that of 2008.
In this first week of the New Year, the S&P 500 has retreated almost 4%, the FTSE 100 has fallen more than 5%, and the Shanghai Composite has lost almost 12%. It's also worth mentioning oil, which continues to crumble, slid to a 12-Year low.
Adding to the turmoil is government intervention. The PBOC devalued the yuan yet again, now sitting at its lowest rate against the U.S. dollar since March 2011. The Chinese have also intervened in equities, suspending trading in their markets twice this week.
The investment community easily forgets how often panic sends shockwaves through the system. It was only this past August that a six day stretch erased $2.1 trillion of value from U.S. stocks. Is volatility back in full swing? Maybe. This week, the VIX hit its highest level in over three weeks.
It's times like these that investors seek flights to safety. Historically, gold has served as one of these "safe haven assets," but according to Citigroup metals strategist, David Wilson, "gold's strength is probably going to be relatively short term." That said, gold has shot up this week amidst market turmoil, hitting a 9-week high and breaking up through $1,100 an ounce.
Using the SPDR Gold ETF (GLD) as a proxy, it's conceivable that gold can no longer be considered a safe haven, especially in light of recent performance. The ETF returned -28.33% in 2013, -2.19% in 2014, and -10.67% in 2015. With a new wave of panic setting in, investors might want to look to new assets to diversify and weather dislocations in global markets as we head into what could be a rocky 2016. One such asset, which emerged amidst the 2008 financial crisis, is bitcoin.