Key facts: Bitcoin has been affected by declines in traditional stock markets. Unlike stocks, bitcoin's recovery has always been faster. Recent movements in global stock markets are putting the conception of bitcoin (BTC) as digital gold to the test. While this idea persists among its enthusiasts, its price action reflects that it is being traded as if it were a technology stock.
So far in August, bitcoin has acted in correlation with the main actions. Collectively, they experienced their biggest daily drop in years on the so-called “Black Monday” at the beginning of the month, since when they have recovered. This can be seen in the following chart, which shows the price of bitcoin above and the Nasdaq 100 (NDX) below. The latter is the index that compiles the shares of the main 100 companies listed in the United States, largely technology companies.
BTC price in orange and NDX in purple. Source: TradingView. The fall exhibited by the markets has been influenced by massive sales due to macroeconomic factors. The main reasons are the rise in interest rates in Japan and fears of recession in the United States, as reported by BitcoinDynamic. With this performance, the idea that bitcoin works as a safe haven asset against the turns of the stock markets is put in check. Comparisons between bitcoin and gold start from their respective scarcity and decentralized issuance made by miners. Just as there is a finite supply of gold on the planet, the Bitcoin network is designed to automatically reduce the creation of new BTC through a process known as halving. These attributes facilitate its price increase in response to demand, so they can be attractive to investors in times of risk rejection. However, for the moment, specialists warn that Bitcoin is largely seen as a risky asset that could become digital gold“Many investors view bitcoin as a risky bet on its future as digital gold, hence the higher return profile than gold,” said Alex Thorn, head of research at cryptocurrency fund issuer Galaxy. This can be seen in the chart below which shows its current decorrelation with the precious metal.
Correlation between Bitcoin and Gold. Source: Bloomberg. “Put another way, if Bitcoin were traded as a store of value, it wouldn’t have much growth potential,” the specialist noted. In fact, the currency has outperformed gold and major stocks this year, despite the corrective sideways period it has been going through since its new all-time high reached in March.
So far in 2024, the price of bitcoin has increased by 44%, while gold has increased by 21% and the Nasdaq by 17%The appreciation of the digital currency has been motivated in part by the launch of its exchange-traded funds (ETFs) in the United States.
Interest in Bitcoin is growing among institutional and state investors
“Unlike gold, bitcoin is not yet widely held by sovereigns, central banks or institutional investors,” the Galaxy executive added. However, more and more such players are taking an interest in the market, opening up the possibility of a future with more adoption. Presidential candidate Donald Trump has pledged to turn the government’s seized holdings of the currency into a strategic reserve if he wins the election. In addition, Republican Senator Cynthia Lummis of Wyoming wants the state to buy 1 million bitcoin for such a portfolio and use it to pay off the national debt. In the meantime, The number of institutional investors investing in bitcoin ETFs is increasing since its launch in the United States. This is something that favors the currency as digital gold, if your investment strategy is long-term. However, for Josh Gilbert, analyst at the trading platform, eToro, this is not the case. “It is not realistic to think that institutional investors are allocating capital to bitcoin for the same reason as gold. These two assets do not play the same role in investment portfolios,” says Gilbert. The reason is that, Due to the high volatility of BTC, its risk level may be higher than that of the precious metal.. “If investors panic or look to deleverage, cryptocurrencies are often the first asset on the list,” warns the eToro analyst. Of course, this is a behavior that can only occur among those who see it as a risk asset. “Bitcoin investors are divided: some see it as tech stocks, others as digital gold,” clarifies Ki Young Ju, CEO of the crypto asset analysis platform, CryptoQuant. “Digital gold believers remain stable, while tech stock believers panic, sell and switch to gold in bad macro,” the CryptoQuant CEO elaborates. “BTC should rise in difficult times: that is Satoshi’s original intention,” he adds, referring to the anonymous creator of Bitcoin. In this sense, The currency is sometimes tied to risk aversion events affecting the stock markets. Although further traction for its digital gold narrative could change this, so it will be key to monitor its performance, especially if the stock enters an overheated downtrend as some predict.