For years, traders and investors were wondering if Bitcoin can be the digitalized version of gold. They even created a special altcoin named ‘Bitcoin gold’ and kept looking at a correlation between the two assets.
Even now, the question arises, can the recent drop in Bitcoin be associated with the recent rise on gold, or vice versa? In my opinion, those two movements and instruments are not correlated. The fact that both are quoted in dollars does not change anything - gold is very strongly influenced by the dollar situation whereas Bitcoin generally isn't.
First of all, the investor base is completely different. You can see it practically everywhere; they even mock each other on the internet. Gold Investors are considered old-school traders; babyboomers, generally not familiar with the latest in technology.
Bitcoin traders tend to be millennials and Gen Zers, and always looking out for new innovations. To them, if you invest in gold, you are a grandpa and you probably used to ride a dinosaur to school.
There are just too many differences between these two groups. But when Bitcoin was reaching all-time highs, it attracted pure speculators who just wanted to get rich thanks to the latest volatility. Ask an average hodler (someone who holds Bitcoins) about blockchain technology, in most cases you won’t get a clear answer.
For the past year, Bitcoin attracted people who wanted to get rich fast, not minding the risk. When it comes to gold, it’s a completely different crowd. People tend to own gold for protection over the years and not to become rich overnight. They buy it mostly because they want to protect what they already have. In a nutshell, people own gold for safety and bitcoin for a rollercoaster ride.
Despite two different investor bases, I can see one dominant similarity; very often, gold and Bitcoin investors, don’t believe in fiat money. They also firmly believe that putting money in gold or cryptos is much safer than investing in the broken financial system represented by the dollar or global stock markets. (Though some Bitcoin traders love to trade meme stocks like AMC or GameStop. You know, the ones promoted on various forums like Reddit.)
I can only think about one additional similarity, but it’s a similarity that drives those two instruments apart. Both are considered a great payment method. Gold used to have this status and Bitcoin is expected to gain it in the future.
Now, you will not pay for goods with gold coins or bars. There is a more convenient way to pay for things, like Bitcoin for example. Fast, reliable and cheap.
The $ connection
Comparing the recent price swings, we don’t see any special similarities between those two. We had times, where they were both falling, going up, or going in the opposite directions without any particular manner. Usually, gold is correlated with the dollar and global risk perception while Bitcoin is not. At this stage, with Bitcoin it’s just the psychology of the masses - global macro-economy matters less or maybe not at all. The bottom-line is there is no clear correlation.
The recent decline of Bitcoin is a reaction to a simple burst of the bubble. The technical situation on this cryptocurrency suggests that currently we are seeing just a small stop before another, painful decline. On the other hand, the situation on gold is a combination of the strength of the dollar and fears about another wave of Covid infections.
What’s more, many investors trade gold to hedge against rising inflation. In both instruments, we can sense fear, but fear comes from different factors. And fear can move them in opposite ways - Bitcoin down and gold up.