Gold vs Bitcoin: Will Second-Wave Fears Edge Bitcoin Closer To Safe-Haven Status

News, Opinion | July 2, 2020 By:

COVID-19 second-wave fears have been ignited as countries across the world begin easing restrictions and reopening economies since coming to a standstill nearly three months ago. While many bask in new-found freedom, some are beginning to feel the pandemic pinch once again as European and US stock markets fall. Against the backdrop of economic uncertainty, bitcoin has been trending consistently across the months under lockdown, moving in tandem with gold and prompting many to believe that the cryptocurrency is a step closer to becoming revered to the likes of the precious metal. 

With many experts speculating that the full effects of the coronavirus pandemic have yet to be felt, the notion of bitcoin as a safe-haven asset will be tested. How then will bitcoin trend for the rest of the year? And, with bitcoin’s recent stability, is the cryptocurrency edging closer to reaching the status of gold? 

Value and Volatility

Historically, gold has always been a strong contender to hedge against recession and other economic uncertainties. When most of the world was in lockdown, many turned to the safe-haven metal with investors hitting a record US$23 billion of exchange-traded funds that hold gold in the first quarter alone. Most recently, the second-wave fears have once again pushed gold price up, marking its highest peak in 8 years. Many have even speculated that gold will hit US$2000 in the coming year should the precious metal reenact its gains following the 2008 Global Financial Crisis. 

In comparison to gold, bitcoin has systematically been a volatile asset and despite its recent surge, its volatility reached a 6-year high as countries went into lockdown. While this depreciation during the initial wave of the coronavirus was mirrored by gold, the dip in the precious metal was not as pronounced as the digital currency. No doubt, bitcoin reflects similar properties to gold—having a fixed finite supply, however, its consistent price fluctuations have shaken confidence in associating bitcoin with the likes of gold. As such, for the cryptocurrency to reach the status of gold, it would need to walk out of the yellow metal’s shadow and prove its ability to be a reliable asset that retail investors can depend on especially with the uncertainty of today’s economy.

Gold vs Bitcoin

Uncovering the similarities between bitcoin and gold would be essential to understanding why many often associate the cryptocurrency with the precious metal.  With bitcoin’s recent halving in May, the scarcity of the cryptocurrency was further compounded raising added notions amongst analysts of reaching the status of gold. Its fall in supply entering into circulation is anticipated to lower the inflation rate once more, edging bitcoin closer to the inflation rate of gold. Additionally, bitcoin and gold are considered speculative investments where both assets attract buyers based on price movement fluctuations, and naturally, their close similarities often prompt many to allude bitcoin to the likes of gold.

Despite the similarities between the two, the mass appeal certainly differs. Bitcoin, on one hand, represents an internet commodity that is free of intervention and ruled by the ideals of currency economics and will always appeal to a class of investors who believe in the freedom of money. Conversely, gold is a scarce and universally accepted value of money that has withstood the test of time. With both having fundamentally different instruments of value, it is difficult to foresee one market cannibalising the other in the near future. 

While bitcoin price has been trending consistently in lockstep with gold, it is difficult to ascertain if the digital currency is indeed edging closer to the status of gold as volatility plagues bitcoin’s past. However, if the cryptocurrency does continue its consistent trajectory, there may possibly be a day where bitcoin reaches the same reputation and safe-haven status as gold. 

Beyond COVID

Despite early reports of a potential COVID vaccine which helped dampen worries and rally stock markets in late May, the renewed second-wave fears have once again trampled global economic recovery sending investors to seek the security of gold. As the economy’s recovery hinges greatly on an effective vaccine being rolled out, the added speculation and uncertain outcome of putting a stop to the global pandemic will no doubt seesaw stock markets and dull investor confidence in the near future. This was vividly reflected in the price of gold that moved in tandem with the announcement of both the vaccine and the rising spread in South Korea, China, Australia, the UK and many parts of the world. With the low likelihood of returning to our former lives any time soon, it is probable to expect the prices of bitcoin and gold to continue its volatile trends for the rest of the year until a vaccine is found. 

As we continue living in a socially distant society, governments across the world from Singapore to Kenya have encouraged the use of digital finance as a means to reduce physical contact and stamp additional spread. Coupled with the dependence of gold to hedge against unpredictable economic conditions, digital gold’s accessibility and affordability may gain traction as an ideal alternative in the new normal that we live in, strengthening its position as a reliable digital safe-haven alternative in the long-run. But, with the constant flux of the pandemic economy, little is known about how we’ll be impacted, raising more questions than answers that can only be uncovered with more certainty in the economy.