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NEW YORK (BLOOMBERG) – Bitcoin is taking the spotlight from gold as a hedge against risks such as further dollar weakness or a resurgence in inflation, after expanding its performance advantage over the yellow metal.
Cryptocurrency’s roughly 150% leap in 2020 places the price of the digital currency relative to gold at a high in nearly three years, according to data compiled by Bloomberg. The growth comes as investors look for portfolio buffers amid predictions that the dollar could drop as much as 20% next year in the economic recovery from the pandemic.
“Bitcoin appears to be the hedge of choice against the looming US dollar devaluation, either through greater Federal Reserve quantitative easing, higher government debt or a steeper yield curve – or all three,” Jeffrey Halley , senior market analyst with Oanda Asia Pacific, wrote in an email.
Bitcoin’s investor base is also expanding as more institutions make the leap into the asset class. Purchases or sponsorships from the likes of Square Inc., Paul Tudor Jones and Stan Druckenmiller add to the mix. But its volatility, including a furious rush to US $ 20,000 (S $ 26,870) in December 2017 followed by bankruptcy, makes arguments in favor of cryptocurrency as a store of value controversial.
The fear of missing something “is really at stake here, and the fact that so many big names are publicly declaring their positions is clearly helpful,” Chris Weston, head of research at Pepperstone Financial, wrote in a November 18 statement. “I don’t see this move as a craze or overly loved yet.”
Gold is down around 10% from its August record, reducing an advance this year to around 23%. Some strategists are going bearish. Morgan Stanley, for example, cut its forecast for the precious metal to $ 1,825 an ounce on average for 2021 from a previous $ 1,950, arguing that the global economic recovery is undermining reasons for further gains.
A rise in 10-year US Treasury yields above 1% in the coming months could limit gains in the metal, but it will remain attractive as a safe haven next year, Halley said.
As Bitcoin has more than doubled this year, so does the Bloomberg Galaxy Crypto Index, which tracks Bitcoin and the biggest rival coins. Coinciding with these rallies, investments by non-crypto companies in infrastructure and services are growing, such as PayPal’s decision to allow its customers to spend cryptocurrencies across its network of 26 million merchants.
“Gold still has a stronger track record and has been a safe haven asset during falling markets for decades,” Digix chief operating officer Shaun Djie wrote in an email. Bitcoin hoarding by some investors helps explain its recent outperformance and poses a risk if these “whales” start selling, he said.
Bitcoin was trading at around US $ 18,000 on Thursday, having reached that level a day earlier for the first time since 2017. Gold was stable at US $ 1,867 an ounce. The Bloomberg Dollar Spot Index has held near its low since April 2018.
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