EDITOR'S NOTE: Toward the end of 2017, amid the volatility storm that would roil the markets for most of the following year, Bitcoin skyrocketed while gold prices remained weak. Bitcoin earned the moniker “digital gold,” as many investors piled loads of speculative and safety-seeking money into the crypto, just in time for the 2-year “crypto winter” that would wipe it all out. Fast forward to 2022, following another spectacular Bitcoin rise, the digital asset has proved itself to be a poor hedge against inflation and a pitiful safe haven against market crashes and geopolitical risks. Bitcoin is closer to “digital iron pyrite” (fool's gold) than it is to the yellow metal itself. Will this new crypto winter push investors towards gold? How do gold’s prospects compare to that of Bitcoin’s? What price ranges are analysts expecting to see over the next year?
Russia-Ukraine tensions are pushing investors towards gold and away from Bitcoin, with the precious metal outperforming the world's largest cryptocurrency year-to-date.
Uncertainty after Russian President Vladimir Putin recognized two self-proclaimed republics in eastern Ukraine and ordered to send troops there as "peacekeeping forces" have triggered another wave of selloffs in the crypto space.
Markets are now carefully eyeing Western leaders' potential sanctions against Russia. Germany already announced that it is halting the certification process of the Nord Stream 2 gas pipeline project from Russia.
"It is not yet clear when this will happen. Any deployment of military units to Ukraine would presumably be seen as tantamount to an invasion. The West would probably react by imposing sanctions on Russia. The U.S. administration already plans to slap further sanctions on Russia today," said Commerzbank analyst Daniel Briesemann. "Gold remains in demand as a safe haven amid all this turmoil."
Gold was holding around the $1,900 an ounce level after touching $1,915 earlier in the session and trading at the highest levels in eight months. On the other hand, Bitcoin hit a low of around $36,000 overnight and was last at $38,122.16, down 2% on the day.
Year-to-date, Bitcoin is down nearly 18%, while gold is up almost 4%. This is a reversal from last year's familiar trading pattern when gold was stuck in a fairly narrow range while Bitcoin surged to all-time highs of $69,000 in November. Since reaching that high, Bitcoin has tumbled 45%.
It is also interesting to look at Bitcoin's price relative to gold, which has retreated to the lowest level in seven months. One bitcoin now only buys 19.9 ounces of gold. This ratio peaked at 37 ounces back in October.
The geopolitical uncertainty and inflation worries have boosted the case for holding the yellow metal as a safe haven. However, Bitcoin, which many have been referring to as gold 2.0, has closely mirrored the performance of the U.S. equity market as investors look for safety elsewhere.
"In the globe's latest maelstrom — U.S./Russia/Ukraine — Bitcoin, the asset purported to be the answer to every question, has quietly weakened and is notably underperforming its arch-enemy, gold," 22V Research head of Technical Strategy John Roque said in a note.
Looking at gold versus Bitcoin, Roque said that the situation favors gold. "We're looking for Bitcoin to get back to 30,000 and then break below there, and we continue to expect gold will make a new all-time high."
Some crypto experts are not even expecting a major rally until 2024. Crypto exchange Huobi's co-founder Du Jun told CNBC this week that the next bull market in Bitcoin will come only in two years when the next "halving" occurs.
"Following this cycle, it won't be until the end of 2024 to the beginning of 2025 that we can welcome the next bull market on Bitcoin," Du said.
Bitcoin's finite supply and the halving process are what make massive price surges possible. Bitcoin halving happens every four years, and it is when the reward for mining Bitcoin transactions gets halved, which also cuts the rate at which new Bitcoins enter circulation. The last Bitcoin halving was in May 2020.
For gold, analysts are projecting more gains above the $1,900 an ounce if the situation in Ukraine continues to escalate. "If the Ukraine crisis escalates further, we believe that gold will remain in demand amid the increased risk aversion, meaning that its price will probably make further gains," said Briesemann.
New record highs are also not being ruled out for gold. TheTechnicalTraders.com chief market strategist Chris Vermeulen told Kitco News that gold is looking to reach $2,700 an ounce in one year and then rise to $7,400 in five years.
"We're coming into a pretty major supercycle in precious metals. I think we started back in 2019, and this is about a five-year cycle for gold, and it has been a very tough year for equities. We've had a very long bull market ... When the stock markets get to the late stages, this is where we see commodities come to life."
Source: Kitco News
Originally published on Kitco News by Anna Golubova.