The Coronavirus Crisis is Showing Us that Bitcoin Does not Behave Like Gold But as a High Sentiment Beta Asset

This financial crisis has challenged many of the preconceptions about the market behavior of Bitcoin. Many experts continued to be surprised that Bitcoin hasn’t behaved like a “gold-like safe heaven” or exhibit “non-correlated properties” with major capital markets. I’ve always considered those properties of Bitcoin to be largely exaggerated considering that we are talking about a nascent asset class with a very small valuation relative to major capital markets. The more interesting question is:

If Bitcoin is not a safe-heaven or a non-correlated asset, then what is it?

Recently, someone asked me a similar question at an online conference and an interesting concept came to mind but I hesitated to mention it because I didn’t have the data in front of me. The concept goes back to a paper from 2007 that investigates the notion of market sentiment. In “Investor Sentiment in the Stock Market”, researchers Malcolm Baker and Jeffrey Wurgler introduce the notion of “high sentiment betas” as a representation of small startups that haven’t achieved considerable market value but have high potential. The main argument of the Baker-Wurgler thesis is well summarized in the following lines:

“stocks of low capitalization…