The cryptocurrency’s “digital gold” narrative is again being tested.
Gold touched a new all-time high this week while Bitcoin slumped to its lowest level since November.
Despite gold experiencing more volatility and plunging on Friday, it has still outperformed Bitcoin over the past five years, which begs the question: What exactly is happening with so-called digital gold?
Bitcoin was trading for $83,926 just after 3:00 pm in New York after dropping 7% over a 24-hour period, according to CoinGecko. Over the past year, the leading cryptocurrency is down 20%.
“Bitcoin has never been a consistent safe haven, it’s much more volatile than gold with multiple double digit drawdowns,” Nansen research analyst Jake Kennis told DL News.
Bitcoin in the past has been described as digital gold: a safe haven asset to go to at times of uncertainty. And it has — albeit rarely — played that role.
Bitcoiners have frequently described the digital asset as digital gold because it has a finite supply. Indeed, over the long-run, it has worked as a long-term store of value: Over the past five years, it has risen by over 150% relative to the US dollar.
And there have been instances when the oldest cryptocurrency has moved in tandem with the precious metal: During the 2023 US banking crisis, for example, investors flocked to both gold and Bitcoin.
But Bitcoin’s correlation with gold is generally rare, and most of the time, the cryptocurrency performs like other volatile assets, particularly tech stocks.
“It shows occasional safe-haven characteristics in specific scenarios but remains fundamentally a risk asset, not ‘digital gold’, as of yet,” added Kennis.
Another factor, according to experts, is related to liquidity.
“The divergence between gold and Bitcoin might seem to shake the ‘digital gold’ narrative, but the issue lies in asynchronous pricing logic,” Tim Sun, senior researcher at HashKey Group, said.
He added that traders investing in the precious metal are focused on long-term macro imbalances and sovereign credit risk, while Bitcoin buyers are a different breed.
Bitcoin remains a “liquidity-sensitive macro asset,” Sun said — that is, it’s sensitive to leveraged, high-frequency buyers, rather than those hedging against issues in the world economy.
And it was leveraged trades that battered Bitcoin in October when, not long after breaking a new high of $126,080, a $19 billion wave of liquidations sent the coin’s price plunging.
It has since struggled to regain ground following the brutal crash — the biggest in crypto’s history — trading mostly well below the $100,000 mark.
Despite traders last year touting Bitcoin as a key part of the so-called debasement trade — hedging against a currency’s devaluation — the coin has failed to perform this week, while precious metals soared off the back of the dollar’s dip.
Still, some experts have said the asset is in a class of its own and, while not quite “digital gold,” will benefit from looser monetary policy this year.
By 2035, Bitcoin will capture a whopping one-third of the global store-of-value market, analysts from research firm CF Benchmarks said last month.
