Bitcoin rises to new all-time high – Gold, on the other hand, experiences massive devaluation. Coincidence?
In the last four months gold has lost $4 trillion in market valuation. Bitcoin, in turn, has gained about $180 billion over the same period.
Both gold and Bitcoin have benefited from the Federal Reserve’s aggressive BitBon monetary easing policy. The precious metal reached its record high of $2,075.82 an ounce on 7 August 2020.
But it could not hold the peak. A wave of profit selling arrived and corrected the XAU/USD price by up to 14.97 per cent.
Bitcoin, on the other hand, also saw local sell-offs, but still continued to rise. On December 1, 2020, the flagship crypto currency reached a new record high of US$19,873 per token (Coinbase data). The upward trend was reminiscent of earlier studies that showed a delayed positive correlation between gold and Bitcoin.
Bitcoin has increased by more than 400 percent since March 2020. Source: BTCUSD on TradingView.com
So does this mean that Bitcoin will suffer the same fate as gold after reaching its all-time high? Opinions differ on this.
The value memory thesis
According to JP Morgan Chase & Co., family offices are actively selling their gold-based exchange-traded funds to invest in crypto-currencies. So far, they have sold 93 tonnes of precious metal worth around $5 billion. At the same time, the capital inflow into the Grayscale Bitcoin Trust has doubled.
The study makes gold and Bitcoin look like competing assets. This means that investors are more likely to switch their value storage from physical to digital, which would divert a good deal of capital from the so-called obsolete markets.
Dan Tapeiro, a macro-investor with exposure to both gold and Bitcoin, believes this is possible. Tapeiro:
„$2 trillion worth of gold has been wiped away in the last 4 months. No, not everything has gone into Bitcoin, which has gained $180 billion over the same period, but a 10% rate would still be impressive“.
Charlie Morris, Chief Investment Officer at ByteTree Asset Management, also believes that money has flowed from the gold markets to Bitcoin. Nevertheless, he also recalls that platinum – a commodity rival – has also been on an upward trend in recent sessions and offers more than one alternative to the yellow metal.
„The gold market has been quite hot this summer, so it is not surprising that the price is falling a little as we approach the end of the year,“ Morris said. „Some money has flowed out of gold, maybe it has flowed into platinum because of the green movement, and obviously some of it has flowed into Bitcoin because of all this excitement“.
Problems caused by Bitcoin’s correction
Time and again one reads about reports that Bitcoin would reflect gold – but with a delay. In fact, certain technical fractals signal that BTC would test $25,000 before going down again – as gold did after the August high.