Recently, in times of economic and political turmoil, there has been a trend to treat Bitcoin and gold as risk hedging tools. However, this precious metal has passed the test of time, proving that the demand for precious metals has increased during recessions or political crises.
At the same time, the recent #1 cryptocurrency itself became the cause of the latest crisis, and it still needs to prove its capabilities.
Therefore, during the last financial crisis 12 years ago, cryptocurrencies did not exist at all. Therefore, the next crisis will show the expected value of the asset. Then, it will become clear whether Bitcoin can join gold and prove itself as a reliable hedging tool.
Bitcoin and Gold – a pair or not a pair?
In the early days of their existence, cryptocurrencies were independent of traditional financial instruments. The initial changes began in 2016 when analysts increasingly began to notice the correlation between precious metals and Bitcoin.
Most likely, this is driven by the rapid growth in the popularity of cryptocurrencies among traders. Prior to this, Bitcoin transactions were chaotic, and there was not enough historical information to see their relevance. There are few traders in the market, so its characteristics are more manipulative and do not follow general rules.
Regulators raised the focus of this issue, and they began to consider Bitcoin as a commodity, equating it with gold. Many traders agree with this definition, especially because Bitcoin has long been considered “digital gold”. This is the reason for considering gold and Bitcoin as connected assets.
First, metals and #1 cryptocurrencies have similar price patterns. For example, the charts in recent months show that Bitcoin and gold are positively correlated.
limitation: Like precious metals, Bitcoin has a limited supply, which makes it different from classic currencies.
In addition, mining Bitcoin and gold is not easy, and this process requires resources and funds. Due to the complexity of mining, these assets are considered valuable and are always in short supply.
Facts are everything
More or less reliable statistics on these assets only began to appear last year. It was in 2019 that the correlation between trading instruments became apparent. This is due to growing tensions related to the global economy and the trade war between China and the United States.
So let’s look at the relationship between gold and Bitcoin through an example.
The amazing world of cryptocurrencies
Despite the fact that the total capital of the cryptocurrency market lags far behind the number of stocks or precious metal markets, the cryptocurrency industry can still have a powerful impact on the entire global financial market. Many analysts are confident that the digital asset market is waiting for new prosperity in the near future.
It is not accidental that PayPal is considering allowing direct sales of BTC through its service. Facebook plans to launch its own cryptocurrency Libra. These are all reasons to pay close attention to the industry.
After a brief period of consolidation, the quotations of major cryptocurrencies fell below $10,000 and then rose to the resistance level of $12,000. At the same time, the price of precious metals rose by approximately $1505. The reason for these changes is the growing tension between Washington and Beijing, and the two countries are preparing to impose new tariffs on each other.
The Fed publicly stated that the U.S. economy has begun to decline. In addition, the conflict between Tehran and Washington has intensified, the coronavirus has spread in China, and investors are worried about the fate of the global economy.
The upcoming US presidential election has also exacerbated the uncertainty in the world. These events led to an increase in demand for precious metals, so he held a multi-week rally to show the best dynamics since 2010.
Since the beginning of the year, the price of Bitcoin has risen to $10,400, and gold has returned to the $1,689 area. Both of these assets went bankrupt in March. As a result, Bitcoin fell to the support level of $3,830 and gold fell to the level of $1,460, which happened almost simultaneously.
Bitcoin is now on the cusp of global change. After one month, the coin will be halved, and as a result, the reward for the new block will be reduced by an order of magnitude. If demand persists, the halving will push the price of Bitcoin to rise further.
In this case, trading cryptocurrencies on AMarkets and similar companies is the most profitable because they provide leverage, trading advisors, and analysis functions, which are not unique to standard exchanges.
Bloomberg believes that the connection between metal and Bitcoin is inherently random. Therefore, since the summer of 2018-48% of the time, the correlation between these assets has been negative. The growth of both tools occurred at the same time 21% of the time, and the combined decline was 29%.
But by 2020, the links between them have increased. Therefore, both tools are connected in series 57% of the time.
According to the latest research, Bitcoin has begun to transform itself into a store of value. A little more, it will become a truly defensive asset, which is especially important in the context of the beginning of the economic downturn.
Unlimited supply of gold, but limited supply of Bitcoin
Compare the ever-increasing usable amount of Bitcoin’s gold, with an upper limit of 21 million units (“coins”). Bitcoin’s software protocol was first publicly released 11 years ago. It manages a fixed, algorithm-determined total supply. In stark contrast to gold, the total supply has nothing to do with price changes.
The unlimited Bitcoin supply means that if someone owns a certain amount of total Bitcoin supply, that person will always own at least that percentage. Bitcoin is the only important asset in history with this attribute, and its reliable limited supply is why Bitcoin has become the most difficult asset in the world.
The ultimate supply of Bitcoin is an incredibly powerful feature. If someone owns a certain percentage of the total bitcoins, then that person will always own at least that percentage. If you want to buy and want to do invest open an account for trading.