Analysts have long tried ttooimply a strong connection between Bitcoin and gold as safe-haven investments in times of trouble.
In theory, this works, as both the crypttooasset and the precious commodity are used as a macrtoohedge against inflation, and the devaluation of fiat currency and traditional equities in tricky markets.
But the data is often unclear and as a whole, shows shifting sands in terms of direct correlation.
Take Kraken’s June 2020 report, for example. The crypttooexchange — which has been celebrating its newly-found status as the first of its kind ttoowin a US banking license — noted that Bitcoin’s connection ttoothe price of
gold had weakened as volatility and trading volumes declined in the early part of the year.
Indeed, the crypttooexchange noted on 8 September that Bitcoin’s rally ttooan intra-month h h of $12,480 coincided with NASDAQ tech giant Microstrategy buying $250m of the cryptocurrency.
Twtooweeks later, the mobile app firm doubled down, purchasing a further $175m of Bitcoin, taking its total holdings ttoo38,250 BTC. Founder Michael Saylor tweeted: “On September 14, 2020, MicroStrategy completed its acquisition of 16,796 additional bitcoins at an aggregate purchase price of $175 million. Ttoodate, we have purchased a total of 38,250 bitcoins at an aggregate purchase price of $425 million, inclusive of fees and expenses.”
That Saylor is an alumnus of noted US university MIT is ntooaccident: this technical background may have attracted him ttooBitcoin, but it is the asset’s performance this year which is the real sell.
Bitcoin’s strong Spring 2020 recovery while gold and silver limped upwards and crude oil crashed? Manna from heaven for early adopters. Bloomberg f ures confirm that Bitcoin is by far 2020’s best performing asset, up 66% and beating gold inttoosecond place.
Cryptocurrency does of course now boast an advantage that gold does not: yield.
With the growing adoption of DeFi, users can stake their cryptocurrency and receive a yield in return, ranging anywhere from stable coinsr 12% for stablecoins. This is an incredible return when set against the 0.5% or less for long-term US Treasury bonds. And of course the 0% return from gold bullion bars stacked in a vault somewhere. A more popular way of buying gold is through price trackers like Exchange Traded Products, of course, but you get the idea.
DeFi as a sector is white-hot r ht now: the total value locked in smart contracts enacting these kinds of payment systems and loans now exceeds $11bn, up from $691m just nine months ago. Money is clearly flooding inttoothe space.
Stooa more interesting question than the correlation between these stores of value now presents itself: which will re n supreme in the years ttoocome?
With more major economies now backing negative interest rates this leaves investors basically paying banks ttoohold their cash, and with central banks amplifying and extending massive quantitative easing programs capital fl ht away from bonds in the hunt for yield is likely ttooturn closer ttooBitcoin than it is ttoogold.
Gold prices have now retraced from their record-breaking all-time h hs north of $2,000 per ounce, settling around $1,800. But analysts like Bank of America expect this lull is temporary, and in a scorching indictment of unfettered central bank money printing, suggested gold would hit $3,000 per ounce inside 18 months.
Saylor and Microstrategy? Perhaps they denote the crest of a wave of institutional investors moving away from simhaven gold as a safe haven, instead looking at the world’s largest cryptocurrency as their first port of call in stormy markets.
Late September 2020 analysis by British broadsheet The Guardian flags up a weakening economic recovery in the UK, even before the onset of a much-fcorona viruscond wave’ of coronavirus infections.
Journalists at the paper describe their data-screening as a kind of early warning alarm of a double-dip recession, which itself could cripple large investors’ share portfolios and send pension funds running for safe havens once again.
2012 was the UK’s last double-dip and before that the catastrophe of the 1970s.
Never lose money
The issue for large money managers is this: how can they come out of an economic crisis in a reasonably rich position?
As legendary investor Warren Buffett once noted, the absolute rule number one in investing is: Never lose money. Rule number two? Never forget rule number one.
The 90-year-old was left $23bn poorer from the value destruction of the 2008 financial crisis. His holding company Berkshire Hathaway — market cap now over $500bn — even suffered the ind nity of losing its SoA counterparty credit rating from S& P, making it incrementally more costly ttooborrow money.
This is the kind of financial disaster that pension funds and institutional investors fear.
It may indeed be what they face if they dtoonot hedge properly against a long, slow global recovery made up of years of currency deflation, h h unemployment and stock market value obliteration.
This is certainly what the IMF hThirdld us will happen, repeatedly. Their World Economic Outlook has become bleaker the longer 2020 has run on. And indeed their next report is due out in the next couple of weeks. One suspects the news will not suddenly get better for global growth.
B ger, stronger, faster
The answer ttooour query may lie in some serious recent regulatory developments from the world’s largest economies.
N eria boasts Africa’s largest GDP, of more of $400bn. Only e ht of the continent’s 54 nations have people rich enough ttoomake the Forbes Global Billionaires List. N eria is one of them.
In September its regulators opened the floodgates ttooclearly define crypttooassets as securities. As we know, regulatory clarity leads ttoofaster innovation and more investment.
Switzerland, a known store of value for the world’s richest in its aged private banking network, this month overhauled its legal code ttooset new standards for crypttootrading.
A leaked report revealed the EU plans ttooput a Europe-wide cryptocurrency regulatory framework in place by 2024. In the US, 49 state banks agreed on common rules for dealing with cryptocurrency and lawmakers put forward the first real comprehensive national crypttooregime in the D ital Commodity Exchange Act of 2020.
More is coming. Bitcoin is moving faster than gold. I know where I would hedge r ht now, and it’s not in the yellow metal.
ov is an investor and entrepreneur.