Bitcoin: Digital Gold?
Behind the recent records reached in the price of Gold and the price of Bitcoin, there is a multifactorial view that reflects the evolution of the current financial markets. The price of Bitcoin, often referred to by its followers as "digital gold", recently reached a new historical high above $73,000 dollars, reinforcing, despite its great volatility, the cryptocurrency enthusiasts’ perception that Bitcoin is the new safe haven.
The recent launch of ETFs’s (exchange-traded funds) linked to the price of Bitcoin has expanded and simplified access to this cryptocurrency for traditional investors. This has attracted significant investments from large fund managers such as BlackRock, Fidelity and ARK Invest, thus raising Bitcoin’s prices to new heights. However, this factor alone does not fully explain the rise in prices of Bitcoin…and Gold.
Geopolitical Tensions
Analysts point out that concerns arising from global events, such as military conflicts and geopolitical tensions, also contribute to the peak in the price of both Gold and Bitcoin. The uncertainty surrounding issues such as the war between Russia and Ukraine, the clashes in the Middle East and the recent attacks on Western nations’ ships in the Red Sea by Yemen's Houthis has sparked a sense of insecurity that drives investors towards assets considered safe haven
Gold: "King in Times of Uncertainty"
At this stage, Gold has shown an outstanding performance, reaching a price above $2,200 dollars per ounce, breaking its own historic record.
Besides that, the constant increase in Gold reserves by central banks around the world is contributing to the rise of the precious metal. The data from the World Gold Council especially highlights significant purchases of Gold by countries such as Turkey, China and India, which have added around 39 tons to their Gold reserves in recent months. These acquisitions reinforce Gold's position as a protection asset in an environment of growing geopolitical nervousness.
What is the Short Term Expectation?
Experts suggest the current momentum could take the Gold price in the short term to $2,444 per ounce, which would represent an additional increase from 11% over its current maximum level ($2,200 per ounce).
Regarding Bitcoin, it faces unique factors such as the upcoming "Halving", scheduled for the month April 2024. This event consists of the reduction, at half, of the current level of the rewards granted to the “miners” of new Bitcoin, which has generated an expectation of scarcity among its followers and contributed to the increase in its price. Nevertheless, some analysts also warn about the possibility of a correction in its price in the near future.
JPMorgan points out the possibility of an important adjustment in the price of Bitcoin, with estimates suggesting a drop of up to 43% of its current all-time high price, returning to the level of $42,000 per Bitcoin.
Although both Gold and Bitcoin enjoy an increase in popularity as a result of the recent growth in their prices, it is essential to consider: 1) The price volatility range of each type of asset, 2) Its intrinsic value and 3) The performance of its prices in the long term. In order to do this, we have several centuries of history in the case of Gold, and 15 years in the case of Bitcoin. Thinking about a safe haven for your money in these uncertain times, which of them would you invest in?
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