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Bitcoin is taking the spotlight from gold as a hedge against risks such as further dollar weakness or a resurgence in inflation, having expanded its performance advantage over the yellow metal.
Cryptocurrency’s 150% jump 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 Pte, 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 $ 20,000 in December 2017 followed by failure – makes arguments in favor of cryptocurrency as a store of value controversial.
The fear of getting lost “is really at stake here, and the fact that so many big names are publicly declaring their positions clearly helps,” Chris Weston, head of research at Pepperstone Financial Pty, wrote in a November 18 statement. “I don’t see this move as a mania or overly loved yet.”
Gold has fallen nearly 9% since its record close in August, reducing an advance this year to around 24%. 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 the 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.
“Gold still has a stronger track record and has been a safe haven asset during bear 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 rose for a third session on Wednesday, surpassing $ 18,000 and approaching its 2017 record high. Gold remained stable at around $ 1,877 an ounce.
This story was published by a branch agency with no text changes. Only the title was changed.
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