This week, as institutional investors continue to flood into Bitcoin ahead of year-end, the breakthrough in the price of this cryptocurrency has pushed its ratio to gold to a record level. After surpassing the $100,000 mark, Bitcoin surged to a historical high of $107,000 in the early hours of December 17.
This ratio measures how many ounces of gold one Bitcoin can buy. The ratio is calculated by dividing the price of Bitcoin by the spot price of gold, and is often used to compare the relative strength of the two assets, as well as to gauge investor preference. On Monday, this ratio reached an unprecedented 37.3, meaning one Bitcoin can now buy approximately 37 ounces of gold, setting a new historical high. Compared to the peak of 36.7 during the last cryptocurrency bull market in November 2021, the current ratio is about half a percentage point higher.
Sidney Powell, CEO and co-founder of Maple Finance, stated in an interview:
"Setting a new high means that as an asset class, Bitcoin is maturing and gaining ongoing adoption. We expect this ratio to continue to rise, driven by the inflow of ETF funds. History shows that these fund inflows tend to increase over time, and Bitcoin is increasingly seen as an important component of a balanced portfolio."
Singapore-based digital asset trading firm QCP Capital wrote in a report on Monday that this ratio further solidifies Bitcoin's position as 'digital gold', gradually positioning it as 'an increasingly favored store of value compared to traditional gold'.
Despite this, traders remain more inclined to choose gold over Bitcoin during uncertain times. Bitcoin has gradually become more correlated with traditional markets to some extent, partly due to the approval of the U.S. Bitcoin ETF earlier this January. According to Coinglass, the total assets under management of global Bitcoin ETFs have reached $119 billion. According to the World Gold Council, as of November 2024, the total assets of gold ETFs stand at $290 billion, about double that of Bitcoin ETF assets.
The code of Bitcoin limits its maximum supply to 21 million tokens, with a periodic 'halving' event approximately every four years that reduces the supply by 50%, until the last Bitcoin is minted around 2140. Although both assets are often compared as stores of value due to their limited supply characteristics, the scarcity conferred by Bitcoin’s programming contrasts with the ongoing mining production of gold.
Nonetheless, despite gold maintaining relatively low volatility (annualized volatility of about 20%) and benefiting from its 3,500-year history as a trading asset, Bitcoin still offers higher return potential, albeit with greater price fluctuations and an annualized volatility nearing 50%.
Article forwarded from: Jinshi Data
