No More Digital Gold
Bitcoin is often referred to as “digital gold” by its backers. The term refers to the idea that Bitcoin can provide a store of value similar to gold.
Down 23% in 2022, Bitcoin’s performance this year is even worse than the major US stock indexes, which themselves have been pummeled due to concerns about Fed rate hikes and the war in Eastern Europe.
While Bitcoin has started falling, gold has increased amid the market turmoil, leading many to dismiss the narrative of Bitcoin as a gold replacement and safe-haven asset.
Gold prices are hovering near eight-month highs, and last week gold gained for seven straight trading sessions. Bitcoin, on the other hand, continued to fall after Russia invaded Ukraine.
Since Russian President Vladimir Putin announced a “special military operation” in Ukraine, the world’s largest cryptocurrency by market capitalization has struggled to break above the $37,000 mark in the last 24 hours after dipping below $34,400 briefly earlier Thursday.
“Bitcoin has shown itself better at protecting against inflation expectations and less suited to protect against geopolitical risk – something that gold has proven, again, to be better suited for during this crisis,” said Gavin Smith.
Potential reasons for Bitcoin’s divergence include fears of over-regulation and an overall lack of education about the asset class. Some reports estimate that one-third of all cryptocurrency investors know little to nothing about what cryptocurrency is or how it functions.
Until those changes and investors get clarity on regulations, Bitcoin’s potential role as a safe-haven asset is likely to remain elusive.
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.