Bitcoin, for the most part, has been on a serious spike as of late, but according to analysts from JPMorgan, the boost of the world’s number one digital currency by market cap is hurting gold.
Bitcoin May Be Causing Harm to Gold
In a way, this makes total sense. For one thing, bitcoin appears to do well whenever there is chaos occurring in standard financial markets. We saw this throughout 2020, which was faced with harsh economic problems thanks to the growing coronavirus pandemic. The U.S. dollar and other forms of fiat were being battered with inflation and other problems, which ultimately gave bitcoin the room it needed to expand and spike like no other asset.
Gold is typically considered a standard asset. While it is often looked at as a store of value, it does not have the “out there” reputation of bitcoin and other cryptocurrencies, which could be why it’s beginning to take a few hits here and there. Granted bitcoin continues to rise and do well, we may see gold’s price sink further into perdition.
But it’s not just the chaos of the financial markets that’s making gold do poorly while bitcoin rises to the top. The cryptocurrency has garnered a new reputation as digital gold; a tool that can potentially protect one’s wealth during uncertain times. Keep bitcoin in your portfolio, and you’ve got a whole new pillar of safety supporting you and your money.
As a result, it looks like people may be pulling their funds out of gold and similar assets and placing them into gold. Thus, gold is suffering because it no longer has the financial backing it once did. Rather, it’s seeing a lot of this backing revert to keeping bitcoin and other forms of crypto afloat.
In addition, institutional investors are now beginning to turn their backs on precious metals and view bitcoin as the ultimate saving grace. While we’d all like to see bitcoin reach higher positions in the financial space, gold must remain stable for Wall Street and similar ventures to be versatile. There are now warnings that if things don’t pick up for gold, precious metal bulls could find themselves dealing with some harsh losses in the coming weeks and months.
Strategists at JPMorgan write in a recent statement:
The adoption of bitcoin by institutional investors has only begun, while for gold, its adoption by institutional investors is very advanced.
Since October, bitcoin has managed to raise about $2 billion through hedge funds, while gold has raised $7 billion. Overall, the precious metal is still in the lead, but it’s clear that bitcoin is starting to catch up.
Does the Precious Metal Have a Chance?
The JPMorgan strategists continue their statement and mention:
If this medium to longer-term thesis proves right, the price of gold would suffer from a structural flow headwind over the coming years.