Bitcoin v. Gold.
This narrative is perhaps as old as the cryptocurrency itself. In fact, comparisons between Bitcoin and Gold have continued through the bull and bear cycles of the past year too. That being said, however, the fundamentals have also changed significantly since.
Bitcoin, unlike in 2017, is promoting consistent stability in the market, breaking away from its dependence on the larger financial market. In this article, we will be looking at a hypothetical investment strategy between Gold and Bitcoin to evaluate BTC’s current market standing.
Bitcoin-Gold realized correlation at an all-time low?
Source: Skew
According to data from Skew, the Bitcoin-Gold realized correlation had dropped down to its all-time low value at press time. This highlighted the divergences between the digital asset and the valuable commodity. The correlation index was fairly high during the rally in January and May, but over the past couple of months, BTC’s recovery has had nothing to do with Gold.
Here, it is important to note that particular statement since Gold has a larger market cap than Bitcoin.
Source: Skew
Additionally, the realized volatility between BTC and Gold appeared to be declining – A sign of reduced turbulence for the digital asset. Hence, the likelihood of another massive breakdown is probably low for the crypto.
Yet, Gold is a safe long-term bet, right?
The common go-to argument has always been the fact Gold has intrinsic value and Bitcoin does not. Gold incorporates consistent returns in value and investors do not have to worry about BTC’s turbulent market, others say.
Now, in order to identify whether investing in Gold or Bitcoin is more fruitful, we set out a parameter test for Bitcoin, Gold, and the Dow Jones. One where we tried to identify ROIs on monthly investment or Dollar Cost Averaging.
(Note: It is widely known that BTC has had an obvious edge over Gold this year – Even so, the inferences to be discussed here are different)
The framework of the hypothetical test is as follows,
- Investment of $1000 in Bitcoin, Gold, and DJI
- Buying is limited to once every month
- The timeline is from September 2020-August 2021
Results
According to data, a total investment of $12,000 in Bitcoin over a period of 1 year would have incurred a 66.33% profit, reaching $19,960 at the end of August 2021.
Now, Gold is definitely not expected to match BTC’s returns, but it gets interesting. A similar investment in Gold would have led to a 2.60% decline as the investment value would have gone down to $11,687.
Investment in DJI would have incurred profitable returns as well, with 12.37% returns worth $13,484 over the year.
Hence, Gold hasn’t really been the best form of asset over the past year, no matter its past credentials. As stated in the beginning, the fundamentals are changing, and Bitcoin may be rapidly eating into Gold’s market.
