First Mover: Why Bitcoin Isn’t a Replacement for Gold Just Yet

The price of gold is below its all-time high, while Bitcoin is within striking distance of a record. Billions of dollars flow out of gold while institutional money flows into bitcoin.
The narrative for some proponents of cryptocurrency - and a growing chorus on Wall Street - is that investors have finally seen the light and are pulling money from the yellow metal, an old hedge against inflation, into Bitcoin, the safe haven of the future.
Another explanation, however, could be that a sunnier global economic outlook means risking money on digital assets is a little more comfortable. In this interpretation, Bitcoin is not a sign of the end of the world, but a sign of exuberance.
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While gold has traded 8.5% higher since the start of the year, gold is still more than 12% down from its all-time high in early August, closing Tuesday at $ 1,805 an ounce. A few weeks ago, $ 4 billion left the gold market, a record outflow, according to Bank of America. Bitcoin is up 162% over the year to date.
Last week, JPMorgan analysts Nikolaos Panigirtzoglou, Mika Inkenen and Ekansh Agarwal wrote about the recent growth spurt of the Grayscale Bitcoin Trust in their report, Flow & Liquidity, citing it as a proxy for institutional interest in Bitcoin. (Grayscale is a digital asset management firm owned by DCG, the parent company of CoinDesk.) JPMorgan analysts wrote:
“What makes the last five weeks' flow trajectory even more impressive for the Grayscale Bitcoin Trust is how it contrasts with the equivalent flow trajectory for gold [exchange-traded funds], which has seen modest outflows since mid-October. ... This contrast supports the idea that some investors who have previously invested in gold ETFs, such as B. Family offices, consider Bitcoin as an alternative to gold ... [D] The potential long-term upward trend for Bitcoin is considerable if it competes more intensely with gold as an "alternative" currency, given the market capitalization of Bitcoin (340 billion USD ) would have to rise eight times from here to make total private sector investment in gold via ETFs or bars and coins reach $ 2.6 trillion. "
For Bitcoiners it reads like the text for the "Song of Angels". It was yet another confirmation of the idea that cryptocurrency can and has much to do with gold. It was echoed by other fund managers saying similar things, such as when Paul Tudor Jones II compared the two in May or when Rick Rieder, CIO of BlackRock, said last week that Bitcoin “could largely take the place of gold ".
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Sure, Bitcoin remains more closely correlated to gold than the S&P 500, which had a record day on Tuesday. The 90-day correlation coefficient for Bitcoin and the US benchmark index is currently 0.26, while it is 0.38 when compared to gold bars. (A correlation coefficient of 1 means that the prices of two assets are moving in perfect lockstep. A negative number means they are moving in opposite directions, while 0 means they are unrelated.)
"Alternative?" Not so fast
Recent market moves seem to be saying something completely different, and that seems to have something to do with the money flowing from gold into digital assets. Gold fell 5% on November 9, the day it was announced that preliminary data showed a 90% effectiveness rate for Pfizer's COVID-19 vaccine. Bitcoin immediately jumped 2% on the news. Each additional week has started with even more encouraging results from other vaccine trials, and the trends are falling gold and rising bitcoin.
If money leaves gold and invests in Bitcoin, it may well be because the more optimism in the economy increases the willingness to engage in risky trades such as stocks and cryptocurrencies. That doesn't make Bitcoin a safe haven other than speculating that it could be used as a safe haven at some point in the distant future - a nuanced difference, but a difference nonetheless. This difference might be obvious should another crisis occur to us in the near future.
Since it's still 2020, anything can happen.
- Lawrence Lewitinn
Cost point
Bitcoin is trading near $ 19,220 after rising 4.2% for the first time since December 16, 2017 and closing above the $ 19,000 mark on Tuesday. The cryptocurrency is now in sight of its all-time high of $ 19,783, which it hit three years ago.
"Bitcoin at $ 19,000 is just one more step to a new all-time high, and large market coins take turns piling up. This is a sign that institutional money is continuing to pour into the crypto markets, ”William Noble, chief technical analyst at Token Metrics, said in an email. "ETH 2.0 will revive interest in the decentralized financial space, and we should see the small alternative cryptocurrencies take off very soon."
Major alternative cryptocurrencies have received a bid in the past few days and outperformed Bitcoin in the past 24 hours. While the market leader for crypto is up over 1%, XRP and Stellar lumens are up 12% and 41%, respectively. Tron and Monero are up over 6% while the ether is flat.
In traditional markets, optimism about potential coronavirus vaccines continues to drive risk-weighted assets up. European stocks are trading positively, albeit with less enthusiasm, while the S&P 500 futures pointed to an open flat on Wall Street. Elsewhere, gold has rebounded slightly from the four-month low of $ 1,800 hit Tuesday.
- Omkar Godbole
What is hot?
Coinbase will cease all margin trading tomorrow, citing the CFTC guidelines (CoinDesk).
Binance tightens the crackdown on US users and gives them 14 days to withdraw money (CoinDesk)
Ethereum 2.0 Genesis Day is officially set for December 1st (CoinDesk)
South Korea May Delay 20% Crypto Tax Adoption Until 2022 (CoinDesk)
Digital yen would make crypto markets livelier, says Monex Group CEO (CoinDesk)
The latest on economics and traditional finance
Behind Dow 30000: A Self Sustaining Upward Spiral (WSJ) Low interest rates and a buy-the-dip mantra have put stocks in an ascending pattern, defying pandemics and economic troubles.
Dollar under pressure as risk appetite makes a comeback (Reuters) The dollar posted losses on Wednesday as advances in novel coronavirus vaccine development and expectation of a fiscal rebound from a new U.S. administration shift funds from the greenback triggered riskier assets.
For retailers, this is a party they can't see the end of (Bloomberg). Day trader favorites are up 75% this year.
Oppenheimer Asset Management's chief strategist John Stoltzfus believes the Dow's record high on Tuesday is justified despite the nation's struggle against rising coronavirus cases.
Asian stocks rise after Dow hits 30,000 on vaccine hopes (AP) Asian stocks rose Wednesday after the Dow Jones Industrial Average closed above 30,000 points for the first time despite an ongoing pandemic as coronavirus vaccine development advances kept investors in buying mood
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First step: Why Bitcoin is not yet a replacement for gold
First step: Why Bitcoin is not yet a replacement for gold
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GC = F.
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ZG = F.
BTC = X.
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