Since the inception of the word investing, gold has been among the most popular (if not the most popular) investment tools for preserving wealth. This is due to its unique characteristics such as limited supply (scarcity) and no central authority behind its creation (sort of). However, its performance on weekly, annual and even ten-year scales is not impressive.
Meanwhile, BTC is a much newer concept that takes the unique qualities of gold a step further. Despite its flaws, it has performed much better recently.
Gold price dumps
Being a less volatile and risky asset, gold price performance has typically boomed during economic uncertainty. This can be seen during (and often after) several previous global financial crises, including the 2008 crisis. The precious metal rose to new highs a few years later but was never able to approach the $2,000 level.
The next eight years (2012-2020) were among the most prosperous in terms of global economic growth, leading to a significant rise in the prices of risky assets, such as stocks and, yes, you guessed it, Bitcoin. But more about BTC later.
During this time frame, gold disappeared from investors’ vocabulary, and its price fell from more than $1,900 to less than $1,100 during its worst days. It went on the offensive as the decade came to a close, and when the coronavirus disease 2019 (COVID-19) took the world by surprise, it exploded with a new wave of uncertainty and economic turmoil.
The same thing happened again when the “special military operation” broke out between Russia and Ukraine (also known as war). Speculation of a US government shutdown and the country’s inability to repay its debts led to similar developments.
However, the past few weeks have been somewhat painful for bullion, which is down 7% (over $130). Its price against the dollar, which has been very strong (against other currencies), stands at $1,820 as of Friday’s closing price. This leads to some compelling conclusions – 1) gold has lost all of its annual gains with its recent price decline, and 2) the metal is currently worth less than it was more than a decade ago when it peaked after the 2008 banking crisis.
At the same time, it is no surprise to anyone that the dollar has lost a huge amount of purchasing power, especially after the pandemic and after numerous special relief packages (i.e. printing massive amounts of US currency and sending them to people for questionable amounts). the reasons).
As such, it begs the question whether gold is still the undisputed leader in terms of safe investment assets. Also, is the performance of the yellow metal still linked to US interest rates?
“The whole narrative of holding higher rates for longer is the main reason people are removing their positions from gold as the opportunity cost of holding it rises.” He said Bart Melek, head of commodity strategies at TD Securities.
What about Bitcoin?
Therefore, gold’s performance against the US dollar was impressive until around 2012, when it peaked at over $1,900, as it had during previous massive economic collapses. What has changed?
Although there may be a number of reasons why gold is no longer a safe haven, we will focus on one particular reason – the existence of Bitcoin. Cryptocurrency was created during the aforementioned banking crisis in 2008 and carried a specific message for the billions and trillions of fiat money that were printed at the time in its initial code. It also has many of the characteristics of gold but also takes it to a whole other level.
Although it is also rare (but with a certain rarity, unlike gold), it also lacks a central authority that can inflate the amount in circulation for reasons known only to itself. But it is also censorship-resistant, accessible, non-discriminatory, and digital.
This last part made it particularly profitable during the pandemic when a global lockdown halted gold production and restricted transportation. People couldn’t get their hands on physical gold. Meanwhile, Bitcoin is entirely digital; Transfers take a few minutes and are generally very cheap.
BTC’s price performance was quite amazing and extremely volatile up until 2020, but it skyrocketed in the year following the pandemic and rose from $8,000 to $69,000.
Although 2022 brought very different emotions, due to the ongoing war, the collapse of the industry, and increasing interest rates, the network is working at full strength. 2023 has been very positive so far as well, with Bitcoin trading up 65% from January 1, unlike the precious metal.
Of course, it would be very arrogant and (perhaps) incorrect to claim that Bitcoin has overtaken gold as the most preferred hedge against inflation and economic turmoil. However, its name should find a place among the yellow metal’s noteworthy successors or alternatives, as many prominent financial experts and investors have emphasized over the past few years.
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