The price of Bitcoin has massively outperformed gold throughout November. While BTC is heading for an all-time high and is trading above $19,200, gold is down.
Since its November peak, the spot gold price has fallen by over 8%. Over the same period, BTC has risen by more than 24%, as illustrated by the parabolic rally.
Why does Bitcoin perform so much better than gold?
There are two reasons why gold was down throughout November.
- First, the prospect of nationwide distribution of vaccines in early 2021 has driven the stock market up. In theory, gold performs well when the financial sector collapses. Therefore, the strong momentum of US equities has contributed to gold’s declining momentum.
- Second, despite the risk of inflation, the appetite for safe investments may diminish. There are new assets, such as BTC, which could serve as a hedge against inflation but also have the potential for massive long-term growth.
High net worth investors and multi-billion dollar fund managers seem to perceive Bitcoin as a beta game to gold.
Bitcoin is less liquid and has a „thinner“ market than gold, explains crypto bank and hedge fund manager Stanley Druckenmiller.
But because of the discrepancy between market size and liquidity, investors would not need to hold large amounts of Bitcoin to get an appropriate exposure. Druckenmiller on CNBC:
„Frankly, if the gold bet works, the Bitcoin bet is likely to work better because it is thinner, more illiquid and contains much more beta. It has great appeal as a store of value for both the millennials and the new West Coast money, and as you know, they have a lot of it“.
The coincidence of the growing perception of Bitcoin as an established value store and an inflation hedge with long-term growth potential should boost BTC’s rally.
Long-term BTC investors foresee the gap closing
Investors such as the billionaire Winklevoss twins expect Bitcoin to catch up to gold. In a blog post Tyler Winklevoss writes
„Bitcoin has already made considerable ground in terms of gold – in less than a decade, Bitcoin’s market capitalisation has risen from the white paper to over $200 billion. Today the market capitalisation of above-ground gold is conservatively $9 trillion. If we are correct in using a gold frame to value Bitcoin and Bitcoin continues along this path, the bull case scenario for Bitcoin is that it is undervalued by a multiple of 45“.
The perception that Bitcoin is rapidly moving towards digital gold appears to increase the demand for BTC. However, at a time when the US equity market is heating up, the appetite to hedge assets with gold remains low.