Bitcoin: are capital flows shifting towards gold?
There may be a transfer of capital from the Bitcoin market to that of gold.
This has been suggested in recent days by Indian analyst Ritesh Jain in the Economic Times, showing how the world’s largest gold ETF, SPDR Gold Trust, reported inflows of almost six tonnes last Friday alone, the largest daily inflow since mid-January.
The price of bitcoin until Friday was going through a period of lateralization following a strong bullrun that saw it first double in value from early December 2020 to early January 2021, and then continue to an all-time high in mid-April.
On Friday, however, it began a pronounced decline that led it to lose 23% in a few days.
The speculation is that, behind the scenes, there could be capital moving from the crypto market to the gold market, seeing that since Friday the price of gold has risen 1.5%, returning to levels not seen since early February.
Gold is probably by far the most similar financial asset to bitcoin, so it would not be surprising if, at a time when the price of BTC is struggling, some capital would be shifted to the precious metal.
However, there are also contrary voices that claim that bitcoin and gold are actually profoundly different things.
The continuous comparison between gold and bitcoin
In particular, over the long term, the price performance of BTC and gold does not seem to be aligned.
According to Michael Wilkerson, gold has been among the worst assets of the last year, while bitcoin has been among the best. This is because gold is fundamentally a hedge against the dollar and fiat currencies in general, and against bubbles, so much so that in the long run it is inversely correlated with the performance of stock, bond and currency markets in highly inflationary environments.
Bitcoin, on the other hand, would not be an alternative currency, but an alternative asset that is benefiting from the same trends that have led to exorbitant price increases in other pro-cyclical financial assets.
“Bitcoin may prove to be an excellent speculative investment in an inflationary asset bubble, but, so long as its roller-coaster volatility continues, it will not be money. Neither humans nor investments can truly prove their worth until they’ve suffered through traumatic crises and come out the better for them. All financial assets are overvalued in this moment.
At some point we will have a dramatic and most likely painful correction in stocks and other financial asset classes. It may only be at that stage when gold finally glitters and bitcoin has the real test of its mettle”.
It should be added, however, that bitcoin has already experienced several traumatic crises in its twelve-year history, and has always emerged better than before in the long run.