Bitcoin up and gold down in 2021
In the first four months of 2021, bitcoin and gold prices behaved in opposite ways.
Gold started the year at a price of around $1,885 an ounce, although by November 2020 it had fallen as low as $1,764.
The current price is $1,778, which is more than 5% lower than at the end of 2020.
Moreover, on 8 March it fell as low as $1,676, which is 5% lower than its negative peak in November 2020.
Bitcoin, on the other hand, started the year at $28,000 and is now at around $55,000, a 96% gain.
Thus, in these first four months of 2021, the trend in the price of gold and that of bitcoin have been markedly different.
Indeed, speculation is beginning to circulate that gold is losing its lustre as a risk-hedging asset. It is worth noting, however, that the current value of gold is in line with what it was in July last year, and is still well above what it was before the financial markets collapsed in March 2020, when it was worth $1,641 an ounce.
Gold and bitcoin, the differences
The problem is that while gold may remain an asset that provides protection against investment risks, bitcoin is challenging it as a counterbalance to inflationary risks.
That is, gold may no longer be the main asset to hedge against inflation, because it may face strong competition from bitcoin in this role.
The point is that gold is a reasonable store of value in the long term, but much less so in the short term. At a time when many traders and investors are very interested in short-term performance, it would not be surprising if it lost some of its appeal. Also because, by contrast, bitcoin remains attractive in the short to medium term.
According to these hypotheses, gold would remain as a protection against systemic risks, while the role of inflation protection could shift to bitcoin. Bitcoin is still too volatile to aspire to protect against systemic risks.
In fact, the main difference between the two assets lies in the supply: that of bitcoin is essentially fixed, programmed and inelastic to the market, while that of gold is variable, somewhat elastic to the market, and in some ways unpredictable especially in the long term. This makes the value of bitcoin more volatile, but reinforces its deflationary nature in the long run.