Bitcoin and Gold Price Predictions: What’s a better long term bet?

For most people, bitcoin can be considered to be gold’s digital equivalent. Bitcoin advocates will argue that the digital currency, much like the precious metal, features a decentralized structure that is unlike national currencies. Furthermore, bitcoin, like gold, has scarcity in that it has a capped supply.

Dave Waslen, CEO of HedgeTrade, believes that bitcoin’s unique qualities help differentiate it from gold as well as other assets and currencies. “Due to bitcoin’s decentralized and deflationary nature, it has proven time and time again to be an uncorrelated asset. This stands out in today’s interconnected global economy, particularly during times of political and economic uncertainty.”

On the other hand, despite its limited industrial application, gold’s reputation as a store of value remains intact throughout history thanks to its rarity and uniqueness. 

Overall, 2019 has become the year where both gold and bitcoin have embarked on a new bull run on the backdrop of an impending global recession. However, can these two scarce financial assets maintain the rally?

The argument for bitcoin

Between May and July of this year, Bloomberg data revealed that the correlation between bitcoin and gold had almost doubled.  Although the correlation between the two assets was random over the past year, their trading in tandem surged by 58% starting from May 8th this year.

Granted, the data scope for the statistic was limited, however, the evidence points to the fact that investors continue to see bitcoin as a refuge in time of uncertainty. 

Bitcoin advocates like Tim Draper have added to the mounting recognition of bitcoin as a haven with claims that bitcoin’s price will grow 25-fold by 2023.

“Nasdaq down 3.4% Dow down 2.9%. Bitcoin up 3.2%. Bitcoin may be a remarkable hedge.” Draper said in a tweet.

The prominent bitcoin advocate renewed his bitcoin price predictions after the assets recent price surge to claim that bitcoin’s price is “going to keep going because it’s a better currency, it is decentralized open and it is transparent.”

Draper is joined by other bitcoin advocates like Calvin Ayre, founder of Ayre Group, who believe that Bitcoin can grow much more quickly.

Ayre agrees that “more instability and uncertainty” will lead to “more people hedging on gold and bitcoin.” In his opinion, Bitcoin is much more accessible and easier to buy than Gold. So people can immediately hedge on it if they need to.” 

The argument for gold

Lately, however, bitcoin’s price has plummeted by about 20 percent below its previous support at $10,000. Although this seems to reveal an end to the correlation between gold and bitcoin, analysts still believe that bitcoin may still be following the precious metal in some way.

However, over the past few weeks, reports have shown that the precious metal has outperformed its digital counterpart on the backdrop of an impeachment inquiry into US President Donald Trump. 

Furthermore, gloomy data from the U.S. Institute of Supply Management show that the manufacturing index has fallen to 10-year low signaling signs of a US recession in 2020.

As a result of the recession threats, gold’s claim to the position of a classic haven asset has gotten stronger while bitcoin’s price gets volatile. 

Precious metal experts Martin Huxley (global head of precious metals at financial services firm) agrees that gold is poised to move higher in 2019 thanks to the federal reserve’s less aggressive stance on interest rates as well as the lingering global economic uncertainties. 

While speaking to CNBC, Huxley said that he expects gold prices “to grind higher and potentially test the $1400 an ounce mark towards the end of the year.”

The future of gold and bitcoin

The current levels of volatility reveal that bitcoin is yet to be a secure asset. This is however justified because the asset has only existed for a decade.

However, in certain moments, bitcoin has behaved like a classic store of value hence its correlation to gold. This means that over time bitcoin will emerge as a store of value as more investors gain confidence with it. 

Bitcoin’s and gold’s shared characteristics mean that the two assets can have a place in the world of finance especially in form of gold-backed cryptocurrencies. For now, however, whether either of the two assets finishes on a high or low this year is anyone’s guess. 



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver