Gold Remained a Store of Value as BTC Fell 55% Since 2022 Started
Bitcoin and the broader crypto market continue to witness wild price swings, making the asset class an unfavorable choice for investors. The total cryptocurrency market currently stands at $900B, a far cry from its ATH of $2.3T in November 2021. Bitcoin is currently trading at $20,600, 70% down from its ATH of $69,044.
On the other hand, gold has managed to avoid steep sell-offs, and seems to be rising as the preferred store of value during the current times of extreme uncertainty.
Is Bitcoin Still an Inflation Hedge?
Bitcoin, sometimes referred to as digital gold, has been historically regarded as a store of value by its users. However, the flagship crypto, in tandem with other risk assets, has performed poorly so far this year amid soaring inflation and mounting geopolitical uncertainty. At the time of writing, Bitcoin is trading at around $26,000, down by around 70% from its last all-time high.
Mentioning this, a report by Bank of America stated that Bitcoin has been trading as a risk asset since July 2021. As per the report, the correlation between Bitcoin and the S&P 500 hit an all-time high earlier this year in January. Bitcoin’s correlation with the Nasdaq 100 was also near all-time highs.
It is not very difficult to notice the relationship between Bitcoin and the stock market. Over the past couple of months, a stock market crash has also dragged the crypto market down with itself.
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Gold ETFs See Largest Daily Inflow Since Mid-April on Friday
While Bitcoin is arguably the preferred hedge against inflation among some investors, recent events have proved it is not a safe haven asset. Investors usually turn to safe-haven assets during times of uncertainty—and the fact that BTC is slumping suggests that the majority of investors don’t view it as a safe haven.
On the other hand, gold seems to be an attractive investment choice as of now. The metal has managed to avoid any substantial sell-off and is currently consolidating around $1,838. Moreover, economists at Commerzbank reportedly expect the metal to trade comfortably above the $1,800 level.
There has also been a spike in the daily inflow of gold ETFs. At over 10 tons, the gold ETFs tracked by Bloomberg registered their biggest daily inflow since mid-April on Friday. The renewed buying interest is reportedly seen at prices between $1,800 and $1,850, which is likely to prevent gold from dropping sharply below the $1,800 mark.
Notably, gold has also outperformed Bitcoin by a wide margin year-to-date. While the leading cryptocurrency is down by more than 55% YTD, gold is up by more than 0.60%.
Meanwhile, it is worth noting that gold tends to perform poorly during rising interest rates. The Fed has been determined in its decision to rein in soaring inflation. Just last week, the central bank raised interest rates by 0.75%, it’s the biggest hike in 28 years. This describes why investors are not currently much interested in gold.
Do you think gold would outperform Bitcoin this year? Let us know in the comments below.