It looks like bitcoin and other cryptocurrencies might not be digital gold after all.
Bitcoin prices have dropped more than 15% so far in 2022. Other major cryptos like ether, solana and dogecoin have also dropped sharply this year.
Meanwhile, tactile gold was up more than 4% and retreated around $1,900 an ounce, once again flirting with all-time highs above $2,000.
Savvy investors seem to realize that at a time when the Federal Reserve is aggressively raising interest rates, the gold and other precious metals such as silver and palladium are better hedges against inflation.
“It is now clear that bitcoin trades alongside risky assets rather than being a safe haven,” said Ipek Ozkardeskaya, an analyst at Swissquote, in a report earlier this month. “Bitcoin isn’t digital gold yet, it’s more of a crypto proxy for Nasdaq, apparently.”
Not even Musk’s takeover of Twitter — which some observers think could lead to even more cryptocurrency promotion on the platform — or news that investment giant Fidelity will allow customers to hold bitcoin in their retirement accounts were enough to pull the prices of cryptocurrencies “from the mud”. Bitcoin is now below $40,000.
Many experts point out that gold still has many advantages over digital assets. There are growing concerns that runaway inflation could lead to an economic slowdown, further boosting gold.
“Stagflation risks are rising and geopolitical tensions show little sign of a quick resolution,” said Louise Street, a senior market analyst at the World Gold Council, an industry research firm.
“Gold is historically one of the strongest performers in a stagflationary environment where equities suffer and commodities generally pull back.”
Analysts at the Wells Fargo Investment Institute also said in a report earlier this month that “gold can be physically held, is universally recognized and has had a quarter of the volatility” when compared to bitcoin, equities and other assets.
With that in mind, Wells Fargo analysts are predicting that gold could soar as high as $2,100 an ounce this year.
It’s not just rate hikes and inflation concerns that are lifting gold. Mace McCain, chief investment officer at Frost Investment Advisors, said in a report late last month that gold has also emerged as a safe haven in part because of concerns about Russia’s invasion of Ukraine.
“As events in Ukraine have escalated, we have seen investors turning to gold,” he wrote, adding that bitcoin is still “finding its niche somewhere between a speculative technological asset and a digitized hard currency.”
Along those lines, the good old dollar is also becoming a better investment than bitcoin and other cryptocurrencies during these volatile times. The US dollar index is up about 6% this year.
This just goes to show that, for many investors, bitcoin still does not replace gold or government-backed currencies in times of crisis.
Check out some times Elon Musk tweeted about cryptocurrencies, affecting their price
Source: CNN Brasil
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