Over the recent weekend, as tensions in the Middle East escalated following an Iranian drone and missile attack on Israeli targets, the digital asset market saw divergent reactions between two prominent cryptocurrencies. PAX Gold (PAXG), a gold-backed token by Paxos, soared to a new high of $2,855 on April 13, while Bitcoin experienced a significant drop, plummeting $5,000 from over $67,500 to approximately $62,700, a decrease of 7.5% in a single day, according to CoinGecko data.
This stark contrast in performance has led to renewed scrutiny of Bitcoin's effectiveness as a geopolitical hedge. Bob Elliott, the co-founder and CEO of Unlimited Funds and a former executive at Bridgewater Associates, commented on social media platform X, “Bitcoin may be many things, but it is not a geopolitical hedge.” He observed a near-perfect negative correlation between Bitcoin and PAXG during this period, suggesting that Bitcoin's utility as a hedge may be diminishing over time.
While PAXG reached a peak coinciding with gold, which hit $2,400 per ounce last week, its momentum was short-lived, retreating to a spot gold-linked price of around $2,376. Despite the token's progress, climbing 20% since early March, it faces challenges such as low liquidity—its daily trading volume is around $36 million, significantly lower than more established cryptocurrencies.
On-chain analyst "Checkmatey" from Glassnode criticized market commentators using the temporary price increase of PAXG to undermine Bitcoin, labeling such comparisons as non-serious. Meanwhile, historical data highlighted by Elliott pointed to similar market behaviors in the past, including during the October 7 Hamas attack on Israel, where Bitcoin fell and gold rose. He further noted that during the Russian invasion of Ukraine in February 2022, Bitcoin's price movements were relatively random and confined to a tight range, whereas gold prices surged by 12% during the same period.
Despite recent challenges, Bitcoin has shown resilience, beginning its recovery early on April 15, with prices reaching $65,800. Elliott’s final take was clear, stating, "Along the geopolitical dimension, it's pretty conclusive BTC is not ‘digital gold.’”
This development underscores the complexity of cryptocurrency markets and the varied roles different assets may play in investors' portfolios, particularly in times of geopolitical uncertainty.
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