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Bitcoin like gold but slightly... better?

6 Feb 2020 15:10|Bartosz Grejner

"Bitcoin appreciates at a fast pace. On Thursday afternoon, the most popular cryptocurrency cost about 9.8 thousand USD, recording a 37% year-to-date profit and approaching the threshold of 10 thousand USD, which was broken regularly last time in September. Bitcoin's appreciation connects with the world's events, which raises the question: is Bitcoin a gold 2.0?," writes Bartosz Grejner, Analyst at Conotoxia.

Gold, along with the franc, the yen and the dollar, is the so-called safe haven. It means that this precious metal gains when the world is experiencing dangerous things, or for some reason, uncertainty is growing. Of course, the price of gold can also be influenced by the laws of supply and demand. For example, increased demand was observed last year from central banks. However, it is the growing anxiety that has become the main reason why the price of gold per ounce rose in early January to its highest level since March 2013, slightly above 1,600 USD per ounce. For the same reason, the Bitcoin price was probably rising as well.

Year of coincidental price trends

The correlation between the prices of gold and Bitcoin has been very diverse since the beginning of the cryptocurrencies. 2019 was exceptional in this respect. From the beginning of January to the end of September, the prices of this precious metal and cryptocurrency were similar (positive correlation). From about mid-October for nearly two months, there was a divergence: when gold remained relatively stable, Bitcoin significantly depreciated (negative correlation). At that time, the cryptocurrency market was dominated by not so good sentiment due to, among others, Libra's problems (Facebook's cryptocurrency). The relationship between the gold and Bitcoin again coincided during the holiday season. And it was no coincidence.

From that moment on, events occurred that traditionally increase demand for so-called safe havens. The conflict between the U.S. and Iran, and the current threat of a coronavirus epidemic from China - both factors maintain high demand for gold and Bitcoin. Since holidays, prices have been growing practically in line with each other, except that Bitcoin appreciates at a slightly faster pace. The difference between the price of one Bitcoin and one ounce of gold was in a narrow range of about 5-6 thousand USD, in favour of the former. However, from the end of December, it grew gradually, to reach about 8.2 thousand USD on Thursday, the highest level since September last year.

Weaker than Tesla, better than gold

The difference between Bitcoin and gold prices is perhaps not a key measure by itself. However, it becomes more meaningful if we start to perceive Bitcoin as an alternative to gold or - as a gold 2.0. That higher return on investment then becomes more appealing, bearing in mind the still significant risks associated with cryptocurrencies in general, of course.

The Bitcoin's price fluctuations do not seem to be so huge if we compare them, for example, to the recent increases of Tesla, one of Elon Musk's companies, which on Tuesday in its highs recorded approx. 130% increase since the beginning of the year (on Wednesday this profit dropped to 76%). In comparison, the 37% jump in Bitcoin value seems to be very modest, not to say stable as gold.

6 Feb 2020 15:10|Bartosz Grejner

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