Bitcoin Struggles as Investors Seek Safety in Gold

• Gold reaches new highs as Bitcoin flounders.
• The gold required to buy 1 BTC keeps dropping.
• Central banks buy gold at record levels, suggesting no “soft landing.”

Investors turn to safe haven assets to preserve wealth during economic downturns. These assets typically maintain or even increase their value when traditional markets are volatile. While Bitcoin has been positioned as a potential safe haven, its price volatility in times of stress casts doubt on this narrative.

In recent months, gold has reaffirmed its position as the undisputed flight to safety. With economic uncertainty persisting, investors have increasingly snubbed the leading cryptocurrency in favor of the precious metal.

Bitcoin Flounders, Gold Shines

Bitcoin’s price took another hit over the weekend, echoing last month’s plunge to $49,000 amid concerns about the yen carry trade unwinding . While gold also faced pressure from this trend, it quickly rebounded to set a new record high of $2,530 per ounce.

The stark contrast in price performance has renewed the downward trend in the Bitcoin-gold ratio. According to XE data, the ratio currently stands at 23.13 ounces of gold per Bitcoin , a significant 30% decline from March 14, when it was as high as 33.60 ounces. 

Since March 14, the BTC/gold ratio has been steadily decreasing, reaching a low point of 21.40 ounces on August 4, when Bitcoin sunk to a 26-week low as investors rushed to repay yen-denominated loans.

The declining BTC/gold ratio has coincided with a surge in central bank gold buying, suggesting a potential shift in investor sentiment toward the precious metal.

Central Banks Step Up Gold Buys

Central banks appear to be a significant factor in gold’s impressive price rally. In the first half of 2024, they purchased a record 483 tons of gold, eclipsing the previous high of 460 tons set in 2023, according to the World Gold Council.

A survey of central banks revealed that their primary reasons for holding gold were its lack of default risk, its performance during crises, and its historical significance. 

This suggests that central banks’ increased gold purchases are partially driven by concerns about economic instability, which contradicts the prevailing narrative of a soft economic landing ahead.

What About BTC?

While a diversified portfolio containing Bitcoin and gold might offer protection against economic instability, central banks appear uninterested in purchasing Bitcoin. Although rumors persist that Russian and certain Gulf state central banks hold Bitcoin, these claims remain unverified.

In 2021, Christine Lagarde, the president of the European Central Bank, dismissed the possibility of central banks ever investing in Bitcoin, citing its speculative nature and incompatibility with traditional currency models.

However, some still view Bitcoin as a digital form of gold. Marion Laboure, an analyst at Deutsche Bank, sees the potential of Bitcoin becoming the 21st-century version of gold . She emphasized that gold and Bitcoin are valuable because they are free from (direct) government control.

On the Flipside

• Between 2010 and 2023, BTC emerged as the decade’s top-performing asset, with gains exceeding 6,000% .
• Bitcoin exhibits a risk-on correlation, casting doubt on its being a safe haven asset.
• Peter Schiff noted that Bitcoin‘s YTD gains came mostly in the year’s first two months .

Why This Matters

Investors’ flight to gold does not negate Bitcoin’s potential long-term role in diversified portfolios.

Peter Brandt’s analysis gives Bitcoin the edge over gold long term.
Bitcoin Soars Against Gold: “Cruel” 10 Years Ahead for Peter Schiff?

Charles Hoskinson confirms Cardano decentralized governance is here.
Cardano Ushers in Voltaire with Genesis Key Burn