What Bitcoin’s new ATH means for the ‘digital gold’ debate

2020, the year of the digital gold narrative

Copper Team

2020 will go down as a transformative year for Bitcoin. 

At the start of the year, the cryptocurrency was still being met with fierce criticism from institutions. Today, Bitcoin’s appeal has stretched well beyond millennials and the few tech-savvy investors, with established corporations like PayPal, MicroStrategy and MassMutual catapulting the young asset into the mainstream as a ‘digital gold’. 

With Bitcoin soaring past $20,000 yesterday to eclipse its prior historical record, ‘Bitcoin vs Gold’ is in the midst of another fiery round of debate across online forums and boardrooms worldwide. 

Bitcoin demand outstripping gold

When looking at the past year, the same narrative driving up the price of Bitcoin has also been responsible for gold’s price rally. But recently, the precious metal has seemingly lost some of its luster in favour of the crypto. Copper’s CEO Dmitry Tokarev believes that investors are finally realising the advantages of Bitcoin as a superior, modern store-of-value to gold and are rotating out of one and into the other. 

He commented: “We’re seeing a very interesting shift play out right now. Gold is the traditional hedge but in a modern economy, Bitcoin is far easier.”

“Bitcoin fuses the benefits of technology and gold; it’s portable, has a guaranteed limit on supply and with the proliferation of institutional-grade custody – it can be securely stored. Certainly, gold will always hold a prominent position in the financial ecosystem owing to its long history and proven track record for insulating against stock market shocks, however storage and insurance costs eat into the returns of gold. Also, even though both gold and Bitcoin are out of the clutches of politicians, more investors have found security in Bitcoin because the cryptocurrency is truly in the hand of individuals, whether gold is held by central banks.”

A report published last week by CoinShares last week found that gold saw outflows from investment products of a record $9.2bn over the last four weeks, while Bitcoin saw inflows totalling $1.4bn in the same period. 

CoinShares’ findings echo a recent call by JPMorgan that Bitcoin is quietly eating gold’s market share. A note to clients released in early December by the bank’s strategist Nikolaos Panigirtzoglou pointed to money increasingly flowing out of gold and into Bitcoin. He stated that though Bitcoin currently represents only 0.18% of family office assets while gold represents 3.3%, if this begins to shift dramatically, Bitcoin could see new inflows of billions.

One high-profile company that recently reduced its exposure to gold in favour of Bitcoin is UK-based investment management firm Ruffer. In a portfolio update note posted online, Ruffer justified its massive Bitcoin allocation (worth $75m in today’s prices) as ‘an evolutionary rather than a revolutionary move.’

Bloomberg Intelligence commodity strategist Mike McGlone, also recently noted that Bitcoin looks set to replace gold, tweeting recently: Is Bitcoin replacing gold? Futures and fund flows are saying yes. Rising futures open interest and investor inflows in Bitcoin v. the same declining for gold indicate the cryptocurrency gaining an edge for price appreciation, in our view.”

An even more ferocious bull market awaits?

As 2020 draws to an end, Bitcoin has been on the receiving end of some rather lofty price projects  – Citibank thinks the value of BTC could potentially hit a high of $318,000 by December 2021, while ARK’s CEO Catherine Wood told Barron readers she believes it could surge to $500,000.

While it’s difficult to say if Bitcoin will see such dramatic price gains in 2021, with increasing adoption from individuals, sophisticated investors and large corporations, there remains a long runway ahead for growth.

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