Key takeaways:
- Bitcoin has shown a stronger correlation to the stock market than gold, undermining its reputation as a safe-haven asset.
- Bitcoin also underperformed gold during periods of market turmoil in 2024, raising doubts about its suitability as a store of value.
- Gold demonstrated resilience amidst market volatility, driven by central bank purchases.
- Analysts say Bitcoin shares some characteristics with gold, but its future as a store of value depends on its ability to decouple from speculative assets.
Bitcoin’s reputation as a gold-like store of value has come under the spotlight this year following periods of market uncertainty. The stock market drop on Aug. 5 rippled through crypto markets, sending Bitcoin down 16%. Gold showed more resistance, retreating just over 1%. These flash crashes have happened a few times in 2024, and each time, BTC – often touted as “digital gold” – has come out worse off than real gold.
According to data from crypto research firm Kaiko, Bitcoin (BTC) underperformed gold during the Aug. 5 sell-off. The asset, a proxy for the crypto industry, has become more tied to the stock market instead, particularly to blue-chip technology stocks such as Apple, Amazon, and Microsoft.
Bitcoin Fails to Attract Safe-Haven Cash
The data shows that the BTC to gold ratio, which measures the relative performance of the two assets, dropped to its lowest level in six months on Aug. 5. When the ratio falls, Bitcoin performs worse than gold, and vice versa. The BTC price itself plunged below the psychological $50,000 mark, a rate of decline not seen since the collapse of FTX and Terraform Labs in 2022, leaving the entire crypto industry in limbo.
Adam McCarthy, a research analyst at Kaiko, told Cryptonews by email:
“During at least two periods of market turmoil in 2024, Bitcoin did not attract safe-haven flows. This raises questions over its suitability as a so-called safe-haven asset.”
The correlation coefficient measures the relative performance of gold and Bitcoin. Over the past two years, BTC’s correlation to gold has remained “fairly weak.” According to Kaiko, the 60-day correlation between Bitcoin and gold has ranged between minus 0.3 and positive 0.3 since 2022.
A reading of 0.3 implies that the assets are moving in lockstep, while negative values represent weak correlations.
So far this year, the price of Bitcoin has tracked U.S. stock markets, spurred by institutional adoption following the launch of spot Bitcoin exchange-traded funds (ETFs). Bitcoin soared 85% to a record high of $73,700 in March, as billions of dollars flowed into the ETFs. The asset has since pared most of those gains and is trading 20% below its all-time high as of writing.
Most ETF issuers promote Bitcoin as a supplement or an alternative to gold. But the two assets are driven by different basic factors, analysts say. Kar Yong Ang, a financial market analyst for the online forex and stock trading broker Octa, told Cryptonews:
“While Bitcoin was initially referred to as “digital gold,” its correlation with risky assets suggests that it may be more accurately viewed as a speculative investment.”
By comparison, gold – a tangible safe-haven asset and inflation hedge – has shown resilience to tightening global monetary policy, boosted by strong central bank demand. According to the World Gold Council’s 2024 Central Bank Gold Reserves survey, central banks added 1,037 tons of gold in 2023, ranking just behind the record buy of 1,082 tons in 2022.
The survey also found that 29% of central banks plan to boost their gold reserves, the highest level the Council has seen since it began the annual survey six years ago. The buying pressure, which comes amid fears of war and global economic recession, sent the spot price of gold up 5% to an all-time high of $2,508 per troy ounce on Aug. 15. Since January, gold has climbed over 17%, and 27% in the past year.
Meanwhile, Bitcoin slumped 4.5% to under $58,500 within hours on the same day after U.S. Consumer Price Index data showed that prices rebounded in July. The news raised hopes for an interest rate cut by the Federal Reserve in September. Although Bitcoin managed to recover these losses by Aug. 17, the fluctuations did not go unnoticed by economist and gold advocate Peter Schiff. He wrote on X:
“Bitcoin really diverged from other risk assets today [Aug.15] and collapsed by over 5% in under two hours. Gold also reversed today but in the other direction, turning a morning loss into a gain. Gold’s rise would have been much greater had investors not misinterpreted today’s data.”
Is Bitcoin the New Gold?
Gold and Bitcoin are both characterized by their scarcity. Bitcoin’s pseudonymous founder, Satoshi Nakamoto, wired a hard cap of 21 million coins into the world’s biggest cryptocurrency protocol. Estimates suggest that a total of 213,000 tons of gold have been mined throughout history.
“Bitcoin’s finite supply and decentralized structure have naturally led to its perception as a store of value, in addition to its role as a medium of exchange,” Kar Yong Ang said.
Whereas fiat shares the quality of scarcity with the two asset classes, central banks can print more money as governments direct. Bitcoin, on the other hand, has no central issuing authority. Safeguards such as halving will theoretically ensure a stable population of coins after the cap is reached.
In practical use terms, investors use Bitcoin and gold as a hedge against inflation. Both asset classes tend to appreciate when traditional markets are hit with uncertainty. This was true of the Covid-19 era when gold reached a then record of $1,902 per ounce in 2020, while BTC was closing in on $29,000 by the end of 2020. Government-issued fiat currencies struggled in the same period because of stimulus activity.
“Essentially, Bitcoin’s appeal as a safe-haven asset varies from country to country,” said McCarthy, the Kaiko research analyst. He cited countries such as Nigeria, Argentina, and Turkey, where significant currency devaluation has coincided with a rise in the adoption of cryptocurrency.
Bitcoin’s Safe-Haven Status Is Still in Question
Maruf Yusupov, co-founder of Deenar, a gold-backed stablecoin, said Bitcoin’s characteristics relative to gold depend on the market headwinds it is facing at a particular time. Speaking to Cryptonews, Yusupov explained that BTC bore the brunt of the Aug.5 crash because of its risk-on status.
On the other hand, he noted, “Gold’s resilience is a function of its very large market cap fueled by its sustained adoption trend, pushing its price to a fresh all-time high.”
Bitcoin’s claim to safety largely rests on its relative performance to different fiat currencies around the world. McCarthy acknowledged the claim was tested during periods of market stress several times this year.
In April, for example, Bitcoin’s market value fell 6% despite a surge in demand for safe-haven assets as the conflict in the Middle East escalated. On the other hand, gold rose 8%, and the U.S. dollar also rallied. McCarthy said Bitcoin was also relatively unchanged in October 2023 after the Hamas attack on Israel.
However, the jury is still out on whether Bitcoin lives up to its billing as digital gold. This is especially true since there have been some bright spots, including the U.S. banking crisis of March 2023, when the BTC price spiked. McCarthy stated:
“It’s still too early to say whether or not Bitcoin is a safe-haven asset in the true sense like gold is. While it has outperformed during some previous market events, it has more recently and more often been correlated with equities during periods of market stress — underperforming versus assets like gold and USD.”
Kar Yong Ang, the Octa financial analyst, said Bitcoin’s potential as a long-term safe-haven asset could not be entirely discounted due to rising interest from ETFs and government agencies. “This indicates higher liquidity and stability in the future,” he said.
Has Bitcoin Detracted from Nakamoto’s Vision?
Bitcoin’s creator, Satoshi Nakamoto, envisioned the first cryptocurrency as a radical alternative freeing people from centralized traditional finance.
“What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party,” Nakamoto wrote in the Bitcoin whitepaper.
The disruptive scheme would have its own peer-to-peer safeguards to protect sellers from fraud while transactions would be computationally irreversible. It was a far-reaching emancipatory gesture that minimized the power of governments and banksters over individuals. The decentralized finance envisioned by Nakamoto considered regulation as an anathema.
However, as Bitcoin has evolved into a speculative asset and a recognized investment class, the crypto community has increasingly accepted regulation as necessary for protecting investors and as a marker of Bitcoin’s acceptance in mainstream finance.
“While the original use case was to serve as a P2P medium of exchange, Satoshi was open-minded about how the coin could evolve in the long term,” said Yusupov, the Deenar halal stablecoin co-founder. He added:
“In my opinion, serving as a store of value reinforces Satoshi’s vision, not diminishes it. The Wall Street embrace we are seeing now might be the precursor to massive nation-state accumulation in the long term.”
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