Gold loses luster as institutional demand fuels bitcoin price surge, analysts say

In the past month, bitcoin has outperformed gold by a significant margin, gaining over 46%, while gold prices have fallen by more than 3%. This divergence highlights shifting institutional investor sentiment as bitcoin solidifies its role as a potential high-growth investment vehicle, according to analysts.

As of publication time, gold was trading above $2,600 per ounce, retreating from its record high of $2,787 at the end of October. Meanwhile, bitcoin's price increased from over $68,000 to over $98,000 in the same period.

Deenar co-founder Maruf Yusupov suggested that bitcoin's rapid rise in the wake of Donald Trump's U.S. election win may be reshaping traditional views on inflation hedges.

"Trump’s focus on tax cuts, tariffs, and crypto is driving interest in bitcoin as a modern alternative to gold," Yusupov told The Block. "As institutional adoption accelerates, we could see a significant shift in capital away from gold and into digital assets."

"Bitcoin is increasingly viewed as a hedge against inflation and a tool for portfolio diversification, and institutional interest is at an all-time high, with the infrastructure to support mass adoption continuing to expand," deVere Group group ceo Nigel Green told The Block.

This was also a sentiment echoed by Copper.co Head of Research Fadi Aboualfa, who also highlighted the growing similarity in price progression patterns between spot bitcoin and gold exchange-traded funds (ETFs).

"The current trends indicate that both bitcoin and gold ETFs follow a similar pattern in price progression, both with rising assets-under-management that differ only slightly in scale and starting levels. This not only suggests shared market drivers, but also that bitcoin may be cementing its position as a new store-of-value asset alongside Gold," Aboualfa said in an email sent to The Block.

The Copper.co head of research added that this trend shows evidence that bitcoin could be solidifying its place as a new store-of-value asset alongside gold.

Bitcoin ETFs are catching up to Gold ETFs, data shows a  similarity in their price progression. Image: Copper.co.

Fed's hawkish stance dampens gold's allure

The Federal Reserve's recent hawkish stance is also putting pressure on gold's attractiveness to investors. Fed Chair Jerome Powell has recently signaled a cautious approach to future rate cuts, helping to sustain high U.S. Treasury yields and diminishing the demand for traditional inflation hedges like gold, according to Yusupov.

"Powell’s comments suggest that U.S. Treasury bonds can maintain their elevated yields, reducing the need for inflationary hedges like gold. This shift may also lead investors seeking diversification to consider bitcoin instead," Yusupov said.

According to the CME's FedWatch tool , interest rate traders estimate a nearly 50% probability of a rate pause at the next Federal Open Market Committee meeting on December 18. This is a sharp reversal from the nearly 80% likelihood of a 25-basis-point cut forecasted at the beginning of the month.

Bitcoin derivatives see surge in call buying ahead of Trump inauguration

Also, in the cryptocurrency derivatives market , there has been a notable increase in buying bitcoin call options expiring after January 2025, ahead of Donald Trump's inauguration on January 20.

"Throughout the week, our desk observed aggressive demand in March and June calls, signalling investors' long-term bullish sentiment for next year," QCP Capital analysts said.

Additionally, spot bitcoin exchange-traded funds (ETFs) have extended their inflow streak to three days, totaling $1.84 billion in net inflows during that period.

"As we continue to see strong demand for bitcoin alongside further easing of monetary policy by global central banks, the asset's prices are likely to remain supported as we approach the end of the year," QCP Capital analysts added.

The GMCI 30 , representing the top 30 cryptocurrencies by market cap, is up 2.13% to 175.88 points.