Amid the unsure market panorama, the talk about whether or not or not Bitcoin is a protected haven asset has revived because the digital asset sees bigger allocation amongst institutional and retail traders alike. Bitcoin, the biggest cryptocurrency by market capitalisation at round US$900 billion ($1.22 trillion), has been in contrast with gold as the 2 property bear some similarities — significantly how they are often obtained by mining and their restricted availability.
Solely 21 million of Bitcoin, dubbed “digital gold”, might be mined, and about 90% of it’s already in circulation. Given the similarities, some market observers anticipate the cryptocurrency to behave the way in which gold does — retaining or growing in worth throughout instances of market turbulence.
This 12 months, the worth of gold rallied to over US$2,000 per ounce on March 8, a excessive it final achieved in August 2020. By comparability, Bitcoin additionally noticed a surge at across the identical time, when it reached a excessive of over US$42,400 apiece on March 10.
Nevertheless, in comparison with gold, Bitcoin experiences the next stage of worth volatility. The bottom worth it recorded this 12 months was US$33,520 per coin, a low final recorded in July 2021.
The narrative that Bitcoin is a protected haven asset resurfaced lately, as Russians and Ukrainians, amid the continuing battle, search options to their nation’s monetary establishments. Russia is mulling over Bitcoin as a method of cost for its oil and gasoline exports, whereas Ukraine has accepted tens of millions of {dollars} in cryptocurrencies like Bitcoin to assist its military and activist teams.
Though World Gold Council (WGC) regional CEO Andrew Naylor acknowledges that Bitcoin and gold bear some similarities, he says that the 2 property are basically completely different. “Other than the restricted provide, Bitcoin and gold share an identical decentralised nature, provided that they’re each not issued by the federal government.
“Basically, nevertheless, they’re completely different property due to their demand construction. Gold has demand from central banks, tech, and jewelry, which Bitcoin doesn’t have. [The latter] is primarily an funding automobile with no inherent utility, therefore extra correlated to different property. That isn’t the property of a protected haven asset,” says Naylor.
Other than that, Bitcoin can also be susceptible to regulatory danger, which gold isn’t as inclined to. Some markets have banned or are pondering of banning cryptocurrencies, whereas others reminiscent of India are taxing income from buying and selling in digital property.
“We’d argue that Bitcoin is a complementary asset, however it’s not a protected haven in contrast to gold. We predict that the gold market can also be much more clear in comparison with Bitcoin, which we view as a bit opaque,” says Naylor.
In the meantime, AxiTrader chief world market strategist Stephen Innes factors out that this 12 months, Bitcoin has traded at about 30% correlation to risk-on property. In contrast to gold, he doesn’t suppose that Bitcoin might be an inflation hedge given its worth volatility.
“I believe [the idea] that Bitcoin as an inflation hedge is only a fantasy. However it’s one thing that now we have to be cognisant of, as it’s nonetheless buying and selling above US$46,000 per coin, not US$1. I’m within the view that Bitcoin goes to commerce larger not as a result of I prefer it, however due to the quantity of individuals concerned in it proper now. Whereas I don’t suppose it’ll ever substitute fiat forex, individuals ought to personal a sure allocation in a part of cryptocurrencies for portfolio diversification,” says Innes.
