Bitcoin vs Gold

This year and most recently, Bitcoin has made several headlines in mainstream media as the largest crypto asset rallies to set a new all-time high. Despite the March 12 global market sell-off which saw Bitcoin lost over half of its value, trading around the $3k neighborhood, the digital asset has had a legendary run for the rest of the year.

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This year and most recently, Bitcoin has made several headlines in mainstream media as the largest crypto asset rallies to set a new all-time high. Despite the March 12 global market sell-off which saw Bitcoin lost over half of its value, trading around the $3k neighborhood, the digital asset has had a legendary run for the rest of the year. 

Since the Coronavirus-induced sell-off in March, Bitcoin has surged more than 4 times its price to reach an all-time high of $20830, moving aggressively too(Binance rate). This legendary move amidst the dwindling world economy, rising global debt, and dollar devaluation has gained the noble asset some great interest among high-profile financial players. This has also increased the tussle between Bitcoin Vs. Credit Card.

This has further upheld the Bitcoin narrative of a “store of value” and purported “digital gold.” Amid this run, many Bitcoin proponents and big names have taken to the center stage to compare Bitcoin and Gold fundamentals, with a notion that investors are likely selling off their Gold for Bitcoin.

Compared to Bitcoin, Gold hasn’t made great moves this year, although the precious metal is still in the green with about 21% gains year-to-date (YTD). This could be considered as some decent gains, however, it looks unattractive when compared to Bitcoin which has done almost 170% YTD. 

Commenting on how attractive Bitcoin has become, CEO of business analytic firm MicroStrategy Michael Saylor, who recently led his firm to make one of the biggest Bitcoin purchases in 2020 believes that gold is outdated and uninventive. He pointed out that investors buy it as a habitual store of value. 

Saylor further insisted that investors will likely dump it for a more superior store of value in the future in the face of an evolving economic and technological age.

Seasoned Investors Are Shifting Focus From Gold To Bitcoin

Image source: GraphicRiver

While Bitcoin was having a legendary run, tons of gold has been taken off ETFs, revealing a striking correlation between the duo while supporting the assertion that investors are likely selling off their gold for Bitcoin. Gold prices have maintained a steep downtrend since August when Bitcoin started the legendary run from $10k to the $20k region. The Bitcoin halving effect also plays a crucial role.

As noted by an analyst at JPMorgan Chase & Co., family offices and other funds are selling off their gold exchange-traded funds (ETFs) for crypto with gold-backed ETFs dropping 93 tons of metal, which is valued at $5 billion since Nov. 6. 

With the recent performance, the notion of Bitcoin being a hedge against inflation, and the incessant printing of trillions of fiat currencies is being revisited. A close study conducted by Trustnodes in 2018 found out that substituting gold for Bitcoin has a higher chance of providing risk-adjusted returns. 

“We find that it is possible for an investor to substitute bitcoin for gold in an investment portfolio and achieve a higher risk adjusted return… These results are robust to the inclusion of trading costs.”

Further studies have also revealed that bitcoin is a hedge against geopolitical risk and that the continued devaluation of the dollar and euro has a positive effect on the value of the digital asset. 

Unarguably, these findings seem to be chiefly responsible for the redistribution of gold to Bitcoin, although Bitcoin market capitalization still sits far below that of gold, about 3% of gold market size. This is a pointer that Bitcoin is still very much undervalued, and could be poised for further upside.

Taking into account Bitcoin price predictions, if Bitcoin appreciates 10% of gold’s market capitalization, the digital asset will be valued at roughly $60,000, a staggering 300% up from the current price. 

Commenting further on what JPMorgan thinks of Bitcoin, JPMorgan’s Global Markets Strategy team released a report on Nov. 6, which discusses bitcoin. It compares the flow trajectories for gold exchange-traded funds (ETFs) and the largest Bitcoin Trust Grayscale (which holds more than $10 billion in net assets under management). The report reads:

“Corporate endorsements of bitcoin and in particular the endorsement by Paypal a couple of weeks ago appear to have propagated further demand for bitcoin.”

JPMorgan noted that the ascend of Grayscale Bitcoin Trust suggests that Bitcoin demand is not only driven by the younger cohorts of retail investors, but also institutional investors.

Away from JPMorgan’s report, BlackRock’s chief investment officer of fixed income Rick Rieder shared his view about Bitcoin in a CNBC interview, pointing out that the digital asset is here to stay:

“Do I think it’s a durable mechanism that could take the place of gold to a large extent? Yeah, I do, because it’s so much more functional than passing a bar of gold around,” 

What Does This Mean For Crypto?

The gold to Bitcoin move is already happening and we could be poised for further bigger moves in the near future. The endorsement by high profile financial players like JPMorgan, the largest U.S based banks, and BlackRock, which manages nearly $8 trillion in assets, is the latest sign of validation of Bitcoin from the mainstream financial world.

It raises the assertion that Bitcoin has grown to prove its reliability since the  and has also gained trust from top-flight financial juggernauts who don’t want to be left behind in the waves of the current economic shift. This spells a lot of goodwill for Bitcoin and the entire crypto industry.