Recent Market Turmoil Suggests Bitcoin is Definitely Not 'Digital Gold'

Bitcoin's limited supply coupled with its detachment from government control has often led market dwellers to believe that the leading cryptocurrency is the digital equivalent of gold.

As a store of value, Bitcoin has thereby been considered as a hedge against inflation, much like its gold counterpart. However, after the deep sell-off in cryptos, the thesis that Bitcoin is an alternative to gold has fallen flat.

Market Upset

While crypto tokens recovered from their worst sell-off early last week since the days of FTX's collapse in 2022, Monday once again saw a broad decline in digital assets.

This comes after Bitcoin registered its largest one-day gain in over 16 months on Thursday, despite the world's leading cryptocurrency slipping below $50,000 in nearly August.

On that day last week, the largest digital currency experienced an 8.6% increase to exceed $59,800. But the token has since fallen back again to trade around $58.600.

It's certainly been a volatile period for the industry but Monday's crash shows cryptos are acting like risk assets rather than safe-haven bets.

The industry axiom that Bitcoin is "digital gold" and should be included in a portfolio to protect against stock fluctuations is being tested like never before.

Bitcoin as Stock

Bitcoin acted more like stocks than gold when markets plummeted on Monday and carry trades unraveled.

At one point, the top token fell 17% to below $50,000 before recovering some of its losses.

Bitcoin's correlation with gold turned negative last month, breaking up the theory of the token as an economic hedge.

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Some analysts say it is not feasible to assume that institutional investors are allocating capital to Bitcoin for the same rationale as gold and that these two assets serve distinct functions in investment portfolios.

Some also believe that the significant decline in Bitcoin's value proves that cryptocurrencies are extremely vulnerable to risks.

This includes the possibility of a recession.

Bitcoin Bad For Panic

If last Monday's sell-off is any indication, when investors experience panic, cryptos are likely to be among the first assets they unload.

The relative scarcity of Bitcoin and gold is a common theme in many comparisons between the two assets.

Similar to how the earth's subsurface gold reserves are limited, the Bitcoin network is programmed to automatically reduce the issuance of new tokens every four years through the 'halving.'

Still, some analysts hesitate to dismiss the possibility that the bitcoin as a 'digital gold' theory may be correct.

Despite a 13% decline since early July, Bitcoin is still one of the top-performing global assets. It has risen 26% so far this year, easily surpassing gold.

More than anything else, the introduction of US spot Bitcoin ETFs in early January drove the rise.

However, it has failed miserably as an inflation hedge, going up while prices were stubbornly climbing and down when signs of the effects of high interest rates were becoming clear.

For now, Bitcoin as a haven hedge theory is falling flat.

BRN Says

Bitcoin might not be digital gold as many crypto fanboys had dreamed but its recent price action might offer a good opportunity to add to the stash.

"Yesterday, the $58,500 level we mentioned held strongly and Bitcoin pushed above $60,500 before coming back to $59,500," BRN analyst, Valentin Fournier said.

"The momentum is low but remains positive, as we predicted. We see Bitcoin getting closer to the upper trend of its range ($67,000-$69,000) in the coming weeks."

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