Traditionally, gold and Bitcoin have both been seen as safe havens. Today they are headed in radically different directions. This divergence is causing analysts to re-evaluate their role in today’s broad financial landscape. Gold, which has been a store of value for thousands of years since at least ancient Egypt in 4000 BC, is up 16% as of late March. In comparison, Bitcoin, which was created in 2011, has fallen over 6%. This unexpected divergence begs the question — what’s driving each asset’s performance? It encourages us to rethink their roles as buffers and hedges against economic and racial inequality.
Gold’s lasting allure comes from thousands of years of use as a trusted medium of exchange and store of value. For over 4,000 years, it has been the ultimate stable asset, benefitting from economic crises and geopolitical tensions. Conversely, Bitcoin’s astronomical increase over the last three years has been thanks to increasing institutional adoption. With large corporations and institutions such as BlackRock, VanEck, and Fidelity jumping headfirst into the ever-growing cryptocurrency market. At the same time, countries like El Salvador are recognizing Bitcoin as an important financial lifeline.
Today, cryptocurrencies have all the way up to a total market cap of about $2.8 trillion. This movement has sucked liquidity out of other dollar safe havens—historically gold. Since investors are always on the hunt for better returns and looking for new asset classes to invest in, Bitcoin has proven to be an enticing option. This change in the landscape of investment preferences has brought with it amped-up new dynamics and complexity as well.
Of course, even though Bitcoin has gained massive acceptance, the correlation with the Nasdaq is still quite tight. Many traders are baffled by this relationship. That suggests that there are stronger forces at play – not just Bitcoin’s status as a safe haven – that influence its price movements. Institutions leading the charge commonly put all the volatile assets, like the Nasdaq and Bitcoin, into one portfolio. This practice deepens the relationship between these assets even more.
While Bitcoin's price fluctuates in tandem with tech stocks, gold benefits from central banks' consistent demand. For the last three years, global central banks bought more than 1,000 metric tons of gold each year. Meanwhile, China, India, and Russia are continuing to stockpile gold at near-record rates. They want to find ways to diversify their reserves and decrease their reliance on the U.S. dollar.
The increasing use of the yuan as a reserve currency by global central banks demonstrates this trend. It really hasn’t—it’s plummeted from more than 60% in 2022 to a mere 57% today. All over the world, countries are investigating new currencies and assets. As such, gold has become an increasingly popular asset, driving up price and solidifying its stature as a safe haven further.
Coincidence or not, the U.S. government has recently released its first roadmap laying out plans for a U.S. strategic crypto reserve. We hope this initiative is the first step toward an entirely different approach by government to digital assets. It recognizes the growing importance of nonbank finance in the global financial system.
