While Bitcoin proponents have long touted the cryptocurrency’s potential as “digital gold” and a safe haven, the asset rarely trades with that logic.
The recent divergence between the prices of Bitcoin and gold has been particularly stark. Gold prices have continued to set new records, while Bitcoin has been range-bound over the past few months after hitting an all-time high in March.
Gold futures for December delivery on the Comex exchange settled at a record $2,550.60 an ounce on Tuesday, marking the 30th all-time high settlement price for the most-active futures contract so far this year, before retreating slightly, according to Dow Jones Market Data.
Joseph Cavatoni, senior market strategist at the World Gold Council, said gold's recent strength was mainly supported by purchases by central banks, while market volatility and geopolitical tensions earlier this month also prompted investors to seek gold as a potential safe haven.
Meanwhile, Bitcoin has mostly traded between $50,000 and $72,000 since April. With the U.S. presidential election in November approaching, cryptocurrency investors have been hesitant to make directional bets amid concerns that central banks may sell seized bitcoins and uncertainty about regulation of digital assets.
The divergence in the recent performance of Bitcoin and gold reaffirms that despite the hopes of many Bitcoin bulls that the cryptocurrency can function as a store of value, it is mostly traded as a risk-on asset.
Cavatoni pointed out that Bitcoin and gold are very different assets, with the latter being much less volatile. In the five years between December 31, 2018 and December 31, 2023, Bitcoin's average daily volatility was about 60%, while gold's average daily volatility was about 15%.
Cavatoni pointed to an analysis by the World Gold Council showing that any allocation to gold would provide a higher risk-adjusted return for a portfolio, as long as it was included in the portfolio. Holding gold over the past decade would have improved risk-adjusted returns and reduced portfolio volatility.
In contrast, adding Bitcoin to a portfolio and holding it over the past decade would only increase risk-adjusted returns up to a certain allocation cap (2.5% in this case), but beyond that, portfolio volatility rises and risk-adjusted returns fall.
For Bitcoin to become a potential safe haven, it will require wider institutional adoption and significantly lower volatility, said Aurelie Barthere, lead research analyst at cryptocurrency analytics firm Nansen.
“Bitcoin has sometimes dropped 80% in a year, so it’s hard to view it as a safe haven,” Barthel said.
Cavatoni said the use case for Bitcoin has yet to be clearly defined. “That’s where it’s different from gold, and you can actually think about it in terms of central banks using it as a reserve asset.”
This is something many Bitcoin enthusiasts have been pushing for, especially as Republican presidential nominee Trump has vowed to establish a Bitcoin reserve in the United States, and Republican Senator Cynthia Lummis of Wyoming has introduced a bill detailing plans to create such a reserve.
The article is forwarded from: Jinshi Data
