Bitcoin, Bonds and Gold: Why Markets Are Upended in a Time of Fear

Noelle Acheson is a veteran of company analysis and CoinDesk’s director of research. The opinions expressed in this article are the author’s own.

The following article originally appeared in Institutional Crypto by CoinDesk, a weekly newsletter focused on institutional investment in crypto assets. Sign up for free here.

Anyone seen the movie “Parasite”? You know, the one about class mobility, creative solutions and scary basements. 

I thought of that film after reading Jill Carlson’s op-ed a couple of days ago – she looks at our collective surprise that bitcoin is not a safe haven, and in a gentle way asks “well what did you expect?” She highlights that bitcoin (BTC) is too young to be considered a safe haven because its narrative is not yet formed. That doesn’t mean it won’t eventually get there, though.

What does this have to do with a South Korean Oscar winner? Well, in “Parasite” we spend the first hour thinking the film is about one thing but it turns out it’s not, it’s about something totally different.

The same thing is happening in cryptoland. Jill’s right: Bitcoin’s narrative is the key driver of its price trends, and it will change over time. The story isn’t about what bitcoin “is” but about what it “will be.” 

An even more interesting narrative shift, however, is unfolding elsewhere.

I’m talking about the rest of the market. Almost all of it, in fact. Narratives are shifting all over the place.

For instance, everyone knows you should have bonds in your portfolio because they offer income and stability. I mean, there’s no way rates could go negative, right? 

This week the yield on 30-year and 10-year U.S. government debt dropped to their lowest levels ever. The S&P 500 now yields more than Treasurys, calling into question the entire concept of “risk distribution.” 

Even gold is behaving strangely. We hold it up as the ultimate example of a “safe haven” investment, and yet market structure shifts are calling that into question. Last week the gold price dropped almost 5 percent in one day, the largest daily fall in seven years, due to deleveraging pressure from derivative positions. And we tend to forget that gold fell almost 30 percent at the height of the 2008 market rout.  

Gold’s role as a safe haven is entirely based on narratives: that shiny and yellow are desirable qualities (surely that’s subjective?), that supply is limited (we don’t know that for sure) and that heavy is good (you’ll have heard the derogatory expression “such a lightweight!”). These days, heavy – as in very difficult to pick up and take with you – is perhaps not the indicator of utility it once was.

Even though we can all agree gold’s metallic properties are impressive, its position as the world’s safe haven is no longer universally unassailable, and through no fault of its own. The narratives around it are changing, and the resumption of the gold price rally at the beginning of the week seems less based on conviction the metal will hold its value in times of trouble and more of a desperate realization there’s nothing out there that can yet take its place.

Now, why so many narrative shifts all of a sudden? Actually, narratives are always changing – but the pace of change is usually much slower than what we are witnessing today. 

What we are witnessing is a breakdown of assumptions, in a time of fear. We’re worried about the economy, the banking system, the climate, living conditions, politics, education and the automatization of jobs. Add to that a growing feeling of vulnerability and concern about health and contagion.

In times of fear, we fall back on what we know, what we can be sure of. These days, that’s not much.

In his poignant 1944 paper called “The Social Psychology of Fear,” philosopher Kurt Riezler pointed out that “If we do not know the nature of a danger, we make an assumption. Without such an assumption, we cannot act.” 

But what are assumptions if not conclusions based on narratives? We assumed interest rates would never go negative. We assumed house prices would never go down. We assumed profits were a good thing, and social media would liberate us. 

So now, confronted by many dangers we are still struggling to understand, we are reaching for assumptions we no longer trust. 

Bitcoin’s narrative is changing, as is to be expected for such a young and complex innovation. But so are the narratives that guide just about every other aspect of investing. 

A few years from now, when the new narratives have settled into some semblance of normality, we’ll look back on this time and realize that the bigger story was in front of us all along.