“Bitcoin is New Gold on Crack,” with a Weak Dollar as a Tailwind
In 2020, bitcoin is strengthening its position as digital gold.
People have also started to favor Bitcoin over the traditional safe-haven asset, not just millennials but also the older generation.
In 2020, compared to Bitcoin’s 143% gains, gold has only risen a mere 22.7%. As for November, the bullion is down 0.48% while BTC had a rally of 26.6%.
Even Jim Reid Deutsche Bank notes that there “seems to be an increasing demand to use Bitcoin where Gold used to be used to hedge Dollar risk, inflation, and other things.”
In this quarter, especially after the US election and the news of the vaccine, there has been a “dramatic divergence” between precious metals, Gold (-3.6%) and Silver (-4.4%), and Bitcoin (+13.4%), noted Reid, who called it an oddity.
Bitcoin is “creating momentum of its own… up over 70% over the last six weeks as more and more investors are starting to see it emerge as a credible asset to invest in,” he added.
While some retail exposure is definitely here, this recent rally has been primarily driven by the whales as institutional money comes pouring in.
As Bitcoin proponent Michael Saylor, CEO of MicroStrategy, the first publicly-listed company to put BTC in its balance sheet, noted, “Given the challenge of how to invest $600 million in treasury reserves, after a lifetime of experience & months of analysis, I decided on an allocation of 100% Bitcoin, 0% Bonds, 0% Stocks, 0% Real Estate, 0% Gold. Seems rational to me.”
Yesterday, for the first time since mid-December 2017, Bitcoin reached nearly $18,500. BTC/USD has been trading around $17,820 in red, as of writing.
For digital gold, much like the yellow metal and other assets, a weak dollar also spells bullishness. Over the years, the US dollar and Bitcoin have been experiencing an inverse relationship.
While the dollar rose 16% from the low in early 2018 to the peak in March 2020, Bitcoin fell 75% during the same period. In contrast, since the March high, the dollar has fallen 10%, while Bitcoin has rallied 250%.
“Bitcoin is new gold on crack,” wrote Charlie Morris of ByteTree, who says a weak dollar is a tailwind.
According to him, the Dollar index has turned south in the longer-term with a death cross imminent. “Bitcoin is too young to have seen a decent dollar bear market and has thrived despite that. Now imagine what happens when the dollar really does start sinking,” he added.
After devaluing the US dollar in 2020, the Federal Reserve hasn’t given up its plan on it yet. Another stimulus package is to make an entrance as well.
“Bitcoin seems to be the hedge of choice against the U.S. dollar debasement that is looming, either through more Federal Reserve quantitative easing, higher government debt or a steepening yield curve — or all three,” wrote Jeffrey Halley, a senior market analyst with Oanda Asia Pacific Pte.
A bit mind boggling when you step back to think about it. Massive deficit.#USD bear mkt seems unavoidable as interest rates at 0 provide no support.
Definition of unproductive money printing.
Sometimes it is that simple. pic.twitter.com/ON9wxduWqA
— Dan Tapiero (@DTAPCAP) November 11, 2020
With the Fed expected to keep interest rates in the 0.00–0.25% range until 2024 and inflation is positive, this “translates into negative real short-term rates, leading to currency debasement for the foreseeable future,” said trader and economist Alex Kruger.