Bitcoin Beating Gold But What will Hold its Value Better in Five Years?


The price of bitcoin is currently trading in the green by 2.34% as it trades around $6,450. Although down 11.89% YTD and about 34% since the COVID-19 pandemic hit the markets, the crypto asset is up over 54% in the past year.

In comparison, gold is up 0.3% since February 9 and 5.7% YTD but only up 24% in the past year, as per Goldprice.org.

Interestingly, in 2013 when the price of bitcoin and gold was at $1,300. Since then at current prices, Bitcoin has recorded an increase of 392% while gold only jumped 23.5%.

Gold has been basically flat while bitcoin went to its all-time high at nearly $20,000 to $3,200 low and back at $6,400. Bitcoin’s volatility is clearly off the roof in comparison to bullion but as popular trader PlanB says, “No risk, no return.”

In the meantime, currently, gold prices are trading lower after the crude oil prices crashed and the US dollar index had a solid rally.

According to experts, gold has started to shake its risky asset image and is becoming more of a safe haven asset again.

“Gold’s supply chain for the physical metal was disrupted over the last 10-days, but that has now settled and taken away any momentum for higher prices,” said Edward Moya, senior market analyst at Oanda. The outlook of the bullion, however, remains bullish “as the world adjusts to never-ending promises of monetary easing,” he added.

The higher the SF, the higher market value

Although it needs to keep in mind that gold has decades behind it and the precious metal is a recognized safe haven asset with a market cap of about $10 trillion while bitcoin is just getting started, Bitcoin’s S2F will catch up Gold’s this halving.

Bitcoin’s current S2F ratio is 27 which will double to 54 and after May 2020 halving and would be very close to yellow metal’s 58.

In the short term, “why would anyone hold gold when cash is clearly doing a better job of storing value,” said analyst Mati Greenspan. The question he said is about the long term and “with policies like QE Infinity, long term low interest rates, & helicopter money, what will hold its value better in five years?”

As per the stock-to-flow model which is based on scarcity which means “utility as a savings vehicle,” if an asset isn’t scarce, it’s not good for saving. Also, “there seems to be a relation between SF (scarcity) and value: the higher SF, the higher market value,” said PlanB.

After 2024 halving, Bitcoin’s SF will go above 100.

Meanwhile, oversupply collapsing oil’s market structure

Now, if we take a look at the price of oil, in Canada it is cheaper than a pint of beer as the price of Western Canada Select (WCS) drops to $4. At one point, in Texas, WTI Midland's contract slipped below $7 a barrel.

Futures in New York edged higher, above $20 as Chinese manufacturing data beats expectation although it is still down 65% since December end.

The broad market weakness has been the result of refineries in South Africa and Canada shutting down while major consuming countries cutting back. At the same time, producers are preparing to flood the market with its barrels and this oversupply is collapsing the market's structure.

The steep decline in oil prices was also seen in the 2008 crisis, the time bitcoin was born. Now, “Petrodollar, the pillar of USD reserve status, seems fragile,” said PlanB.

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