- Both Bitcoin and gold stepped up as hedges against growing inflation.
- Traders’ attention shifted towards the crypto market, as gold ETFs (exhcange traded funds) experienced outflows.
YEREVAN (CoinChapter.com) – As inflation reached a critical 5.4%, investors were keen to hedge their assets, despite the Federal Reserve’s “inflation is transitory” mantra. Gold is a historically established safe-haven asset. However, many investors turned not to the precious metal but Bitcoin instead, causing gold ETFs to lose over 10 billion in 2021.
Bitcoin’s spot price, on the other hand, increased by 143% year-to-date and stood at $62,840 in the Thursday session after establishing a new all-time high at $67,000. So is the gold fever cool-off to thank for Bitcoin’s success?
Gold vs. Bitcoin
Gold has hedged the diminishing purchasing power of fiat for centuries. On the other hand, its digital counterpart Bitcoin joined the haven asset class since the Covid-19 pandemic first wave hit in 2020. Thus, the charts show an erratic inverse correlation between US dollar stability and the mentioned assets.
When the strength of the US dollar against other currencies like the Euro, Japanese Yen, and others (dollar index; DXY) tends to decline, both Bitcoin and gold often exhibit bullish bias. For example, the DXY rose 4.5% in September, while the month shaved 15% off the alpha crypto and 4.9% off gold’s 1oz spot price.
However, experts agree that Bitcoin stole the spotlight and siphoned funds away from the precious metal. Mohamed El-Erian, president of Queens’ College, Cambridge, and chief economic adviser to Allianz, shares the same point of view.
There is an inclination now to look to Bitcoin as a portfolio diversifier, with inflation being one of the catalysts. Bitcoin has attracted money away from gold.asserted the adviser.
Veteran gold traders also see the tendency. The senior portfolio manager at a precious metals investment group Sprott Asset Management, John Hathaway, acknowledged the change is in the wind.
There is zero interest in our strategy right now. The bitcoin crowd see the same things I see in terms of money printing risks of inflation.added the executive.
Gold ETF outflows
Gold-backed ETFs experienced net outflows in Aug (22.4 tonnes) and Sep (15.2 tonnes). In addition, the World Gold Council (WGC) registered that North American outflows outweighed inflows into European and Asian funds. As a result, global gold ETF holdings fell to 3,592 tonnes, the equivalent of roughly $201 billion.
The spot price for the precious metal has seen a choppy performance since it peaked in August 2020. However, some experts believe that the investors’ declining interest in gold is the reason behind Bitcoin’s success as a hedge asset.
Paul Tudor Jones, the founder of Tudor Investments, commented on the matter, saying that the shift of interest was inevitable.
We are moving into an increasingly digitized world. Clearly, there’s a place for crypto, and clearly, it’s winning the race against gold at the moment. [Bitcoin] would be my preferred inflation hedge at the moment.asserted the billionaire investor.
Meanwhile, the alpha crypto surged almost 60% quarter-to-date and peaked at $67,000. The rally came in the wake of the US Securities and Exchange Commission greenlighting the first US-based Bitcoin ETF. Exchange-traded products provider ProShares got the approval on Oct 18, while New York-based asset manager VanEck’s ETF is next in line.