Bitcoin BTC
The recent reversion in the difference between the Gold price and the bitcoin price comes as JP Morgan suggests investors are dumping new for old.
Up until April the 14th, BTC/USD had massively outperformed XAU/USD. The differing fates of the assets, both priced against the Dollar, was a supposed sign of the times.
The Gold price had struggled in the first four and a half months of the year. The yellow metal lost 8% from its January 4th opening price.
On the other hand, the Bitcoin price had rallied strongly over the same period and was up +126% to a fresh all-time high of $64,900.
There is an ongoing argument that Gold had lost the race to Bitcoin as the best way to hedge against inflation. The Bitcoin maximalists might have won round one, but the Gold bugs are winning round two.
The trading over the last five weeks has seen a big reversal in the fortunes of both assets. The Gold price has gained 8% and is almost flat on the year.
The Bitcoin price is 40% lower and currently trying its best to recover the key 200-day Moving Average.
The 30-Minute chart shows us that Gold has been rising steadily since the 14th of April. The Gold price action has been incredibly calm, with declining volatility. The market hasn’t experienced any sharp pullbacks in the last five weeks.
In stark contrast, The Bitcoin price has experienced incredible volatility on its way lower.
In theory, both the Bitcoin price and the Gold price should benefit from a weakening U.S dollar.
Additionally, they are considered hard assets because supply growth is declining in both (in Bitcoins case, supply is finite). This is the reason that as monetary stimulus creates more Dollars, the asset scarcity value attracts investments.
Because they share some, but not all, investment characteristics, investors will hold them for many of the same reasons but often in different amounts.
The outperformance of the Bitcoin price relative to the Gold price has seen Institutions subsequently adjust their allocations.
As the 4-hour chart shows, BTC/USD had added close to 400% on the recent bull run whilst Gold was negative over the same period.
The recent sell-off in Bitcoin has shaved 50% from the returns. However, its 190% increase since November far outweighs Gold’s modest decline.
So will the trend continue for bullion to outperform Bitcoin as a Store of Value (SoV)?
In my opinion, the recent price outperformance of Gold is due to over-leverage in the Bitcoin market. Additionally, the recent correction in BTC/USD could have resulted in the unwinding of long Bitcoin vs. short Gold trades.
Whilst it’s possible that Gold might benefit from Bitcoins’ weakness in the near term. I expect the ‘new’ Gold to recover in the future and go on to outperform ‘old’ Gold in the long run.
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