There have been many arguments as of late about which asset is better: bitcoin or gold.
Bitcoin and Gold Seem to Be on Equal Terms
At press time, they both appear to be doing the exact same thing. Both have taken nasty falls due to panic surrounding the coronavirus, and both are failing to live up to their “safe haven” reputations.
But is it fair to suggest that neither of these assets are “safe havens?” Can such status be taken away from them given that they are suffering – like all assets – from a global fear that has not yet subsided? Not everything thinks so.
Tyler Winklevoss – the co-founder and CEO of the Gemini Exchange in New York – explained on Twitter that both gold and bitcoin are exhibiting the same behavior as of late, and that both should be considered equal in terms of value and vulnerability. Regarding how new it is to the financial space, Tyler wrote:
If bitcoin isn’t gold 2.0, then what is it? The fact that it’s not acting how you might expect only underscores just how early it is.
Anthony Pompliano – a co-founder and partner at Morgan Creek Digital – agreed with Tyler and claimed that its behavior, along with gold’s, is to be expected during a “liquidity crisis.” He says that when people are looking to sell their assets in a panic, it doesn’t matter how strong the product in question is. The prices are likely to go down the way they’ve been doing.
Bitcoin and gold are doing the same thing, just as you would expect them to in a liquidity crisis. They go down. Something happened to gold during the liquidity crisis of 2008, too.
During that time, the world was suffering one of its greatest financial meltdowns since the stock market crash of 1929, resulting in several precious metals – gold among them – entering downward price spirals. Pompliano, however, further explains that by the year 2011, gold had risen to approximately $1,800 an ounce, which still stands as one of the metal’s highest tradeable prices.
There’s No Way to Control How People Will React
A liquidity crisis means that investors all rush to the exit doors at the same time, but there are so may more sellers than buyers that investors actually have a hard time offloading their assets for cash. Quite literally, investors begin aggressively lowering the price they are willing to accept for each asset in exchange for the cash which they are desperately seeking right now… Simply put, gold served as a store of value and a safe-haven asset over the full timeline of the [financial] crisis, but it succumbed to the liquidity crisis during the worst six months. This is what I believe is happening to bitcoin, right now.