Bitcoin and the broader crypto market continue to witness strong price swings, making the asset class an unfavorable choice for investors. The total cryptocurrency market currently stands at $900 billion, a far cry from its ATH of $2.3 billion in November 2021. Bitcoin is currently trading at $20,600, 70% lower than its $69,044 ATH.
On the other hand, gold has managed to stave off the sell-off and appears to be becoming the preferred store of value in these times of extreme uncertainty.
Is Bitcoin still an inflation hedge?
Bitcoin, sometimes referred to as digital gold, has always been considered a store of value by its users. However, the flagship crypto, in tandem with other risky assets, has performed poorly so far this year amid runaway inflation and growing geopolitical uncertainty. As of this writing, Bitcoin is trading at around $26,000, down around 70% from its last all-time high.
Mentioning this, a Bank of America report stated that Bitcoin has been trading as a risky asset since July 2021. According to the report, the correlation between Bitcoin and the S&P 500 hit an all-time high earlier this year in January. Bitcoin’s correlation with the Nasdaq 100 was also near all-time highs.
It is not very difficult to notice the relationship between Bitcoin and the stock market. In the past two months, a stock market crash has also dragged the crypto market down.
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Gold ETFs see biggest daily inflow since mid-April on Friday
While Bitcoin is arguably the preferred inflation hedge among some investors, recent events have proven that it is not a safe-haven asset. Investors typically turn to safe-haven assets in times of uncertainty – and the fact that BTC is plummeting suggests that the majority of investors don’t see it as a safe haven.
On the other hand, gold seems like an attractive investment choice at the moment. The metal managed to avoid any substantial selling and is currently consolidating around $1,838. Additionally, Commerzbank economists would expect the metal to trade comfortably above the $1,800 level.
There was also a spike in the daily inflow of gold ETFs. At more than 10 tonnes, gold ETFs tracked by Bloomberg saw their biggest daily inflow since mid-April on Friday. Renewed interest for buyers would be seen at prices between $1,800 and $1,850, which will likely keep gold from falling significantly below the $1,800 mark.
Notably, gold has also outperformed Bitcoin by a wide margin year-to-date. While the major cryptocurrency is down more than 55% year-to-date, gold is up more than 0.60%.
In the meantime, it should be noted that gold tends to perform poorly during rising interest rates. The Fed was determined in its decision to rein in the surge in inflation. Just last week, the central bank raised interest rates by 0.75%, the biggest hike in 28 years. This explains why investors are currently not very interested in gold.
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About the Author
Ruholamin Haqshanas is an accomplished crypto and finance journalist with over two years of writing experience in the field. He has a solid understanding of various segments of the FinTech space, including the decentralized iteration of financial systems (DeFi) and the emerging non-fungible token (NFT) market. He is an active user of digital assets for remittances.