Precious metals have reached significant new highs this week, with gold achieving an all-time peak. In stark contrast, Bitcoin has experienced a substantial decline, falling to a two-month low. The contrasting trajectories of these assets have reignited discussions about Bitcoin’s role as “digital gold.”
As of mid-afternoon in New York, Bitcoin was trading at approximately $83,926, reflecting a sharp 7% drop over a 24-hour period. Over the past year, the cryptocurrency has depreciated by 20%, raising questions about its reliability as a safe haven asset. Jake Kennis, a research analyst at Nansen, noted that Bitcoin has struggled to maintain a consistent status as a safe haven due to its inherent volatility, which includes multiple instances of double-digit drawdowns.
Historically, Bitcoin has been labeled as “digital gold” due to its finite supply and potential for long-term value retention. It has indeed appreciated over 150% against the US dollar in the past five years. There have been instances where Bitcoin and gold have moved in tandem, such as during the recent banking crisis in the United States, signaling a flight to safety among investors. However, Kennis emphasizes that such correlations are rare, and Bitcoin predominantly behaves like a risk asset linked more closely to tech stocks rather than acting as a conventional store of value.
Liquidity also plays a crucial role in the current dynamics. Tim Sun, a senior researcher at HashKey Group, explained that the divide between gold and Bitcoin casts doubt on the “digital gold” narrative. He pointed out that those investing in gold often focus on long-term macroeconomic factors, while Bitcoin buyers tend to be high-frequency traders sensitive to liquidity fluctuations. This divergence in investor behavior is a significant factor in the ongoing volatility of Bitcoin.
The challenges facing Bitcoin were vividly illustrated in October when a significant wave of liquidations, totaling around $19 billion, led to a dramatic price downturn after the cryptocurrency had briefly surpassed a new high of $126,080. Following this tumultuous event, Bitcoin has struggled to recover and has predominantly traded below the $100,000 threshold.
Despite previously being promoted as a safeguard against currency devaluation, Bitcoin has not performed well this week, whereas precious metals have risen sharply amid a decline in the dollar. Nonetheless, some analysts remain optimistic about Bitcoin’s potential. Analysts from CF Benchmarks recently projected that by 2035, Bitcoin could capture a substantial portion—up to one-third—of the global store-of-value market, suggesting it occupies a unique space in the financial landscape.
While Bitcoin is not yet fulfilling its promise as “digital gold,” experts believe it may still benefit from a looser monetary policy in the near future, adding another layer of complexity to its evolving narrative.
