Why hasn't Bitcoin risen along with gold prices during market turmoil?
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Why hasn't Bitcoin risen along with gold prices during market turmoil?
Long-term bullish on Bitcoin, but if the global market crashes in the short term, Bitcoin will fall with it, whereas gold will not.
Navigating Web3 tides with focused insightsBy: Wolfgang Münchau, DLNews
Translation: Felix, PANews
Gold prices have reached a record high of $2,500 per ounce. Adjusted for inflation, they haven't yet come close to gold's January 1980 peak. But they're approaching that level.
The rise in gold is driven by investors positioning for lower U.S. interest rates, a weaker dollar, and a potential tech stock collapse. So why isn't Bitcoin joining this rally?
Certainly, Bitcoin is trading much higher than at the end of 2022. Yet there’s a clear difference between gold’s steady climb since 2000 and Bitcoin’s sudden price spikes.
The key distinction is this: when investors fear financial instability, they turn to gold. Bitcoin, by contrast, remains the ultimate risk-on asset, with characteristics of a technological investment.
Not a Hedge Against Depreciation
As the author noted in a previous column, Bitcoin is not a hedge against currency depreciation, nor a hedge against a tech bubble.
Top investors like Warren Buffett and George Soros have recently announced exits from certain areas of the high-tech sector.
Hedge fund Elliott has warned that the AI boom is overhyped—especially Nvidia’s stock—and that, as they put it, AI has already entered bubble territory. The author largely agrees.
The reason is that this revolution won’t halt the long-term decline in productivity growth across the West. The U.S. has managed to reverse its productivity slowdown—but only if you include the tech sector. Excluding tech, America looks no different from Canada or Europe.
The productivity miracle in tech is tied to the stock market’s provision of cheap capital to the industry. When that flow of funding ends, the productivity gap between the U.S. and Europe is likely to narrow.
If productivity growth slows, what justifies sustained high corporate profit growth? Current valuations assume it will. In the long run, however, one would expect profits and productivity to align.
There are various ways to view gross domestic product (GDP). One way is to see it as the sum of all profits and all wages.
For most of this century, profit growth has outpaced GDP growth—and thus wage growth—as political and demographic trends favored corporate earnings.
This situation is now changing. Until the last century, the S&P 500’s price-to-earnings (P/E) ratio fluctuated slightly below 10 to 20—a period of relatively high productivity.
The current P/E ratio stands at 26. For Nasdaq, it’s 40. If long-term productivity growth declines, it’s hard to imagine how these valuations can be sustained.
Highly Valued Tech Stocks
The sky-high valuations of tech stocks and crypto assets are based on extremely optimistic assumptions about future earnings growth.
Crypto holds promise for financial innovation, but it may still take another decade or two to become macroeconomically relevant.
Artificial intelligence will undoubtedly impact people’s lives. But both the utopian visions and dystopian fears surrounding AI are exaggerated.
ChatGPT is useful for technical tasks, especially programming, but appears unhelpful for journalism.
Remember how, back in 2017, everyone predicted we’d have self-driving cars by now? That utopia remains many years away.
If we’re lucky, autonomous driving on highways might be feasible within a decade.
A Bitcoin Boom?
So what happens to Bitcoin if the market crashes? Certainly, Bitcoin has anti-inflation properties comparable to—or even stronger than—gold.
Gold carries supply risks. Central banks could dump large reserves onto the market, or new deposits could be discovered. But no new Bitcoin will ever be found; supply shocks are impossible.
Unfortunately, that doesn’t solve the problem. At present, Bitcoin’s fate is closely tied to that of the tech sector. Many investors treat cryptocurrencies as part of their tech portfolios.
Crypto assets—especially Bitcoin—have gained traditional investment features over the years through exchanges, stablecoins, and spot ETFs.
Gold sits at the opposite end of the portfolio—an unexciting, safe-haven asset.
People don’t typically invest in gold to get rich. Gold investors behave more like a cult. The author often wonders why so many older male gold enthusiasts wear bow ties. It’s a peculiar group.
The crypto world has its fair share of eccentrics too, but it’s fundamentally different from gold.
This also applies to how each reacts when bubbles burst. In such a scenario, liquidity drains from the system. Traders rush to meet margin calls.
The financial world isn’t as fragile as it was in 2008. But the author believes a tech stock crash on the expected scale could become a source of financial instability.
Therefore, when the market collapses, Bitcoin is likely to fall with it. However, Bitcoin and other crypto assets will eventually recover—and so will some (but not all) of today’s overheated tech stocks.
The reason the author remains long-term optimistic is that crypto assets share one crucial trait with gold: scarcity makes them secure long-term investments.
Even if most investors don’t see Bitcoin this way today, it is nonetheless true.
Years ago, the author rejected the idea that scarcity alone confers intrinsic value, believing it must be linked to something else—industrial use, aesthetic value, or in gold’s case, a time-tested consensus that it is valuable in itself.
The author has changed their mind on this point. In a world where central banks recklessly expand balance sheets and governments weaponize currencies geopolitically, guaranteed scarcity itself has value.
But that’s a long-term view. If the bubble bursts in the next year or two, Bitcoin will likely fall too. Gold won’t.
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