Gold has been rallying of late, topping $1,400 per ounce for the first time in six years, after recording its seventh straight week of positive gains. Gold Bugs are once again pounding their chests with pride and continuing to cast derisive insults at Bitcoin and other crypto assets, as if there were some reverse correlation between the two asset classes that needed a strong defense. Should Bitcoin investors be worried?
Ever since Grayscale Investments, a trusted authority on digital currency investing that runs a private placement fund called the Bitcoin Trust, publicly traded under the “GBTC” call sign, began an ad campaign, whose tag line was “Drop Gold” and substitute Bitcoin, there has been a festering feud between advocates for each asset. The more boisterous of the dissenters have been on the Gold side of the debate, as if someone had attacked their precious yellow metal by countering that Bitcoin was “Digital Gold”.
The sideshow that erupted produced a variety of amusing quotes, which actually made it into the financial press. One Gold advocate went so far as to say: “The big picture is that bitcoin has been corrupted because it is a creation of man and gold cannot be corrupted because it is a creation of God.” There were others, but the fact that Gold holdings are somewhere in the $6 to $8 trillion category, while Bitcoin’s market cap is just north of $200 billion, would lead one to think that the argument should cease, but one can almost hear Hamlet ruminating that the Gold Bugs “doth protest too much, methinks”.
The recent Gold rally, however, has revived these old arguments, which had been perceived as complaints from commissioned salesmen for the yellow metal that suddenly felt that they had competition from cryptocurrencies. Mind you that the Gold rally was nothing nearly as spectacular as Bitcoin’s meteoric rise in 2019, but it had risen in 30 days from $1,340 to $1,440, only to pull back to $1,400, nice, but nothing to shout about, unless of course you own Gold.
One crypto skeptic, however, could not resist re-opening old wounds. His first salvo: “There’s only slight anecdotal evidence regarding any kind of correlation between gold and bitcoin, and this recent rally seems to torpedo that relationship. The question for bitcoin traders is whether holders will dump BTC in favor of gold. Why might they do that? As a bitcoin skeptic, I see no intrinsic value to bitcoin. Nor is it a “store of value” as some people claim.”
He then answers his own question by saying that holders of Bitcoin could probably care less about exchanging their crypto positions for Gold, but his reasons border on the comical: “Since bitcoin has far more volatility and is more fun to trade, they foolishly stick with the equivalent of throwing money at the casino. So for those crazy enough to hold bitcoin – the dumb money – the move in gold is not of concern. You have much bigger things to worry about, such as the fact that bitcoin has a 95 percent probability of delivering you an average annualized return of 60 percent, plus or minus 160 percent.”
Are these statements intended to blunt the enthusiasm for cryptos of institutional investors that has been building for months? Me thinks not. A portion of the investor community will elect to buy gold as a hedge against inflation and as protection against the further dilution of fiat currencies. Another portion of investors will choose to invest in Bitcoin for similar reasons and for its risk/reward potential over time, and the world goes on.