Despite Bitcoin being referred to as "digital gold," its safe-haven function is far inferior to that of physical gold in the current market environment.

Author: By Dominic Basulto

Translation: Baihua Blockchain

Image Source: Getty Images

All eyes are now on gold, the ultimate safe-haven asset. The price of gold has just reached a historic high of $3,000 per ounce. This price increase is accompanied by a correction in the stock market, a significant decline in the cryptocurrency market, and widespread concerns about the future direction of U.S. economic policy.

But let's not forget Bitcoin (BTC -0.76%), often referred to as "digital gold." An increasing number of top investors believe that Bitcoin is superior to physical gold as a store of value, an inflation hedge, and a safe-haven asset in times of economic uncertainty. But is that really the case?

 01 The Bitcoin vs. Gold Debate

To answer this question, it is crucial to understand the unique characteristics and functions of Bitcoin. Most importantly, Bitcoin has a lifetime supply cap of 21 million coins, with nearly 20 million already in existence. This gives Bitcoin tremendous scarcity. Almost all of the Bitcoin that will ever exist is already in circulation.

But that's not all. Bitcoin is completely decentralized, meaning no central bank, sovereign government, or Wall Street investment bank can alter its underlying algorithm. A unique feature of this algorithm is the Bitcoin halving mechanism. Every four years, the supply of new Bitcoin is halved, making it a deflationary asset over time. This is a key reason many believe Bitcoin can effectively combat inflation.

Due to the encrypted nature of blockchain technology, Bitcoin is highly resistant to government confiscation or other asset seizures. This is one of the reasons billionaire Ricardo Salinas—now one of Mexico's five richest individuals—calls Bitcoin "the hardest asset in the world" (even harder than gold). Bitcoin also has a unique feature: it exists purely in digital form and can be transferred across borders almost instantly. Bitcoin was originally designed as a peer-to-peer digital currency, requiring no third-party intermediaries. While transferring Bitcoin to others is not free, you do not need banks or other financial institutions to intervene and charge fees.

 02 Gold ETFs vs. Bitcoin ETFs

For the sake of discussion, let's assume you do not intend to invest directly in Bitcoin or gold. That is, you do not plan to buy Bitcoin on the spot crypto market or purchase gold bars at Costco. Instead, you might invest in Bitcoin and gold through exchange-traded funds (ETFs) on trading platforms. This method allows you to easily and effectively adjust your portfolio allocation. The most popular spot Bitcoin ETF is the iShares Bitcoin Trust (IBIT -0.18%), so let's compare its performance over the past 15 months with that of the iShares Gold Trust (IAU 0.59%).

Chart of iShares Bitcoin Trust provided by TradingView.

From the chart, it is evident that in the past year, when the market was stable or rising, the iShares Bitcoin ETF outperformed the iShares Gold ETF, but during the current market downturn (as is the case now), it has performed far worse than the gold ETF. This explains why a significant amount of money is flowing into gold ETFs now. Concerns about the economic outlook are real, and some people have hit the panic button.

The recent performance is particularly disappointing for Bitcoin supporters, as it undermines the argument for Bitcoin as a hedge during economic recessions or significant market pullbacks. A similar situation occurred in 2022 when Bitcoin's value dropped by 65% amid a broader market downturn.

 03 Which is the Better Hedge Against Recession?

In theory, "digital gold" should provide the same (or even better) hedging effect against recession as physical gold. But as we know, reality does not always follow theory. If you are very concerned that a recession will erode your hard-earned savings, gold seems to be the better hedge. Its 4,000-year historical record is indisputable.

That said, I would be willing to change my view if one thing happens: Bitcoin's correlation with the stock market decreases. Over the past decade, lower stock correlation has made Bitcoin so special; it seems completely unrelated to any major asset class, providing significant diversification benefits. But if Bitcoin's value also declines every time the stock market drops, its usefulness as a hedge will be greatly diminished. Admitting defeat to gold supporters is embarrassing, but that seems to be the ultimate outcome. Unless Bitcoin can rise against the trend when the stock market falls, gold appears to be the better hedge against recession by 2025.

Article link: https://www.hellobtc.com/kp/du/03/5718.html

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。