Since the arrival of Bitcoin in the mainstream economy and the boost in its price in the year 2017, Bitcoin has been correlated to gold. Many financial analysts and cryptocurrency experts are now calling it “The gold of the digital age”. However, this correlation is still debatable because it has created two think tanks of opposite mentality.
Some financial experts are convinced that Bitcoin is comparable to gold because of its always increasing demand and value. For them, investing in Bitcoin is no different than investing in gold. This hypothesis was partially justified when Bitcoin behaved same as gold during the economic crisis.
Others say that Bitcoin is not a tangible asset and so it can’t be compared to gold which is tangible and easily accessible. Furthermore, Bitcoin lacks a definite platform like gold, which can add further complications in the time of an extreme economic crisis.
Let’s take a look at some of the main events and derivatives that lead to the idea of comparing gold with Bitcoin.
Bitcoin and gold relationship:
In a recent interview with CNBC, Chris Louney of RBC capital markets claims that there is a certain relationship between gold and Bitcoin. He recently published a research paper showing the correlation between the prices of gold and Bitcoin since December 2017. Let’s take a look at some of the supporting facts.
Bitcoin’s success in 2017:
2017 was definitely a huge year for Bitcoin. Not only its value increased many times, but it also gained more interest and trust by the investors because of its decentralized and uncontrolled nature. Bitcoin gained a solid base in 2017 and hence entered the mainstream economy and was accepted by many businesses and governments around the globe.
Because of the similar economic trends in 2017 between the two, many financial experts were convinced that Bitcoin and gold are related to each other.
Gold in 2017:
Gold has long since been considered the safest precious metal for investment purposes. In 2017, due to new trends in geopolitics and economies around the globe, many countries and big investors bought gold as a safe investment. This tread caused a boom in the prices of gold. Although it had nothing to do with Bitcoin, it has been correlated and compared to Bitcoin ever since.
The negative relation:
Most of the people who invested in Bitcoin in 2017 did so in order to reap the benefits of a blossoming market, and so its value increased many times over.
Since then cryptocurrency markets, including Bitcoin, have come crashing down. Yet gold has survived that downturn thanks to its ever-growing market and a limited but constant supply for a healthy market demand. Does this trend suggest a negative relation between Bitcoin and gold? Or is it just the immaturity of the Bitcoin market? Well, Louney says that this nexus will improve as the technology improves.
Gold and Bitcoin are two completely different things in terms of tangibility and behavior under deferent economic conditions. Gold has been around for much longer than Bitcoin and it has stood the test of time. Investors have always trusted gold because of its promising financial benefits and ever-growing market. Many countries buy gold to stabilize their economies. This is particularly true in markets where governments print more currency notes, causing inflation and sometimes hyperinflation. Gold can be used both as a short-term or a long-term investment depending on the financial goals of a nation.
Bitcoin and its market, on the other hand, is relatively new and it behaves differently than gold. No centralized body or authority currently has the ability to control the cryptocurrency, which is why many countries have declared Bitcoin trading illegal. Cryptocurrency experts say that the topic of similar patterns and the relationship between gold and Bitcoin is still to be thoroughly studied. It will take time to gain a better understanding of the relationship between gold and Bitcoin, and to understand any correlations.
At the moment, it is too early to see a relationship between gold and Bitcoin in the global economy because of the lack of sufficient information on the topic.