Are ‘anti-dollars’ best friends now?: Gold and Bitcoin’s joint rise explained

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It was likely market sentiment that pushed the price of gold higher this week to $2,202 per ounce. Typically this doesn’t take long, but you definitely shouldn’t underestimate the sentiment component in a small market like gold. Ultimately, demand and therefore price growth was driven by speculative buyers, as positioning data from futures markets shows.

Bitcoin followed the same path as gold, reaching an all-time high of $73,798 last week. Due to this, the world’s largest cryptocurrency fell more than 10 percent as appetite for junior exchange-traded Bitcoin spot funds waned.

Bitcoin halving is approaching

However, this development can only be short-term because demand will soon increase due to the “halving” expected on April 20, 2024 at 09:28 in the morning. During the halving, the amount of Bitcoin given to miners is reduced by 50 percent. This means that the supply of new Bitcoin coming to market is becoming more scarce.

It is not surprising that gold and Bitcoin are reaching new highs at the same time: both are seen as “anti-dollar” and a hedge against systemic risks in the financial system. It is not for nothing that Bitcoin is the child of the global financial crisis. Moreover, the demand for both is independent of the economic situation, which makes them fundamentally interesting as a diversification tool. Both are rare; this is the nature of gold mining and Bitcoin’s network code.

“There are also many “gold enthusiasts” who are leaning towards Bitcoin. But there are those on both sides who completely reject the other side,” says Carsten Menke, precious metals expert at Bank Julius Baer. Some “gold enthusiasts” do not actually see Bitcoin as having any value, while some “Bitcoin Maxis” see gold as merely a relic of the past, whereas for them Bitcoin is of course the future. Due to the similar starting point, both entities can probably co-exist well.

Safe havens in uncertain times

But Bitcoin definitely has a downside: While gold has repeatedly made a name for itself as a safe haven in times of economic uncertainty, such as recessions, Bitcoin has so far failed to provide this proof. It continues to behave more like a “risk-on” asset, being more correlated with stocks than gold.

“In short, Bitcoin may actually become a kind of ‘digital gold’ in the long term. But from a Western investor’s perspective, we are not there yet,” argues Menke. The situation is different for investors resident in countries where capital controls are implemented. There, Bitcoin is a capital escape tool like gold.

Source :Blick