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Bitcoin, the largest cryptocurrency by market cap has long been an outperformer during hard times but is currently experiencing a downtrend. The sentiment is not better across other markets. Nearly all tech stocks are going through unprecedented volatility, with the tech-heavy Nasdaq 100 index down by over 15% since the year started.
In the midst of all this chaos, gold is rallying, up by over 6% YTD according to data by TradingView.
Risk Assets Tumble as Geopolitical Tensions Continue in Europe
Bitcoin and other risk assets continue to perform poorly as rising geopolitical uncertainty scares away investors. At the time of writing, Bitcoin is trading at $37,700, down by around 2% over the past 24 hours, and by around 22% compared to its 2022 peak of $45,000.
This might come as a surprise given that Bitcoin has historically performed quite well during hard times. In 2021, when inflation was beating expectations, investors and large institutions were turning to Bitcoin to hedge their wealth against inflation.
In October 2021, Paul Tudor Jones, the American billionaire hedge fund manager, said he considers crypto a better hedge against inflation than gold. He said:
“It would be my preferred one over gold at the moment. Clearly, there’s a place for crypto. Clearly, it’s winning the race against gold at the moment.”
JPMorgan also backed Jones, saying that institutional investors were buying Bitcoin rather than gold to hedge against inflation. A note shared by JPMorgan in early October stated:
“The re-emergence of inflation concerns among investors has renewed interest in the usage of Bitcoin as an inflation hedge. Institutional investors appear to be returning to Bitcoin perhaps seeing it as a better inflation hedge than gold.”
While Bitcoin is arguably the preferred hedge against inflation among some investors, it is not a safe haven asset. Investors usually turn to safe haven assets during geopolitical tensions—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. This describes why analysts are bullish about gold even during all the uncertainty. For one, Chris Vermeulen, chief market strategist of TheTechnicalTraders.com, said that the metal is in a long-term technical bull cycle.
“When the stock markets get to the late stages, this is where we see commodities come to life,” Vermeulen said. He also made quite a bullish prediction for gold, speculating that the metal is set to hit $2,700 an ounce in one year, and up to $7,400 in five years.
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Gold-Backed Stablecoins Increase Market Cap
Along with gold, tokens backed by the metal have also been successful in keeping their growth pace even at these times of geopolitical turmoil. This is evident from the increase in the circulating supply of gold-backed stablecoins.
Tether gold (XAUT), the largest gold-backed stablecoin, has increased its market capitalization since early 2021 by more than 365% to around $430 million, according to CoinGecko. Likewise, PAX gold (PAXG), the second-biggest gold-backed stablecoin, has increased its market cap by 150% to around $380 million during the same span of time.
Edward Moya, a senior market analyst at the foreign-exchange brokerage Oanda, argues the bullish sentiment around gold will also benefit gold-backed tokens. He said:
“Many investors are looking to get involved with the volatile crypto asset class, and gold-backed tokens provide some protection against volatility. Gold-backed tokens could continue to see massive appeal as gold’s outlook for the year improves.”
What is your year-end price prediction for Bitcoin? What about gold? Which one of these assets would perform better? Let us know what you think in the comments below.