Key Takeaways:
- Bitcoin struggled below $38,000 in the New York session on Tuesday.
- Experts question the benchmark cryptocurrency’s safe-haven status, citing a negative correlation with gold.
- The yellow metal has soared, riding the wave of tension between Russia and Ukraine.
YEREVAN (CoinChapter.com) – Bitcoin (BTC) was considered the next generation’s disaster hedge in 2021, as financial institutions like JPMorgan admitted that the alpha crypto was a better investment than gold in the pandemic.
However, as the BTC/USD exchange failed to hold above $45,000 year-to-date, its newly-found safe-haven status shuddered. Moreover, the flagship cryptocurrency traded at around $37,700 on Feb. 22, unable to cross the $38,000 threshold with any confidence.
Also read: Bitcoin will not recover anytime soon, warns analyst as BTC sinks below $40K.
Additionally, the International Monetary Fund (IMF) called the digital asset an “unlikely substitute for gold,” as the bearish outlook prevailed among experts.
Bitcoin vs. Gold
In hindsight, safe-haven assets tend to thrive in times of economic turbulence, as investors seek to allocate their assets from the mainstream economy. Gold has been recognized as an essential and tangible store of wealth and form of exchange for thousands of years due to its scarcity.
Meanwhile, as CoinChapter reported, Bitcoin has been more correlated to risk-on assets in the past months than safe-haven assets. In detail, risky investments, such as the stock market tend to behave in contrast with gold and tumble alongside the unstable economy.
The IMF agreed with the outlook, noting the inverse correlation.
Stronger correlations suggest that Bitcoin has been acting as a risky asset. Its correlation with stocks has turned higher than that between stocks and other assets such as gold, investment grade bonds, and major currencies, pointing to limited risk diversification benefits in contrast to what was initially perceived.
read the report.
Also read: Bitcoin drops alongside risky assets, gold steady as Fed confirms aggressive rate hikes.
Furthermore, Holger Zschaepitz, a Germany-based financial journalist and author, sided with IMF’s bearish standpoint on the “digital gold.” He underscored Bitcoin’s low odds of becoming a haven in the current geopolitical crisis between Russia and Ukraine.
Correlation between digital & analog Gold is now even neg. Narrative that digital Gold is better way to escape has not panned out in Ukraine.
said the expert.
Gold on the rise amid the Russia vs. Ukraine conflict
According to a Bloomberg report, Bitcoin has plummeted against the yellow metal and reached a mid-2021 low for the second time this year.
Meanwhile, gold prices soared in the previous month, inching closer to the June highs of $1,908 for an ounce.
Also read: Bitcoin (BTC) becomes legal in Ukraine as the country prepares for a possible war.
Additionally, the precious metal gained value based on the heightened demand.
China’s gold consumption rose by over a third in 2021, as the country’s economy recovered from the coronavirus pandemic. Furthermore, Beijing permitted domestic and international banks to import large amounts of gold.
Turkey added 1.6 tonnes to its holdings in Jan. 2022, while Poland has signaled that it could add 100 tonnes later in the year.
Also read: Bitcoin, stocks, ruble: Putin’s invasion of Ukraine hurt all at once.
However, one of the most significant factors in the safe-havens rise was the brewing conflict between Russia and Ukraine. Vladimir Putin’s decision to invade eastern Ukraine in what appears to be a heightening geopolitical issue devastated Bitcoin and the stock market. Thus, it paved the way for gold to outperform the risk-on assets.
