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MCS | The Relationship Between The "Digital Gold” Bitcoin Futures Chart and The Gold Futures Chart

3 months ago

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In 2020, Bitcoin's identity has become a “value storage” to hedge financial risks, and it has been titled the "digital gold”. As a hedging tool for the depreciation of the currency, it has been introduced into institutions' asset portfolios, and this trend is expected to accelerate in 2021.

After the Nixon Shock, which unilaterally abolished the international convertibility of the U.S. Dollar and gold in 1971, gold has become the leading value storage that can hedge the high volatility of currencies.

Source: investing.com

In the 2000s, whenever a financial crisis occurred and the economy declined, major developed countries, mainly the US, took their dollars, euros, yen, and pounds, which are used as key currencies, and poured them into the market (a.k.a quantitative easing) in order to boost the economy. This method is still in use even in 2021, the time of the global pandemic caused by the COVID-19. In other words, the policy that increases national debt is still in effect. In response to this policy, if you look at the chart above, the price of gold has increased significantly as the quantitative easing policy grows in size. It is evidence that gold has played the role of “value storage” to compensate for the decline in currency value in the traditional financial market.

Now let's take a look at the Bitcoin chart?

Source: investing.com

From 2017 to early 2018, the so-called "bull market" and a sharp upward curve created by individual investors can be seen. Since then, Bitcoin has earned the titles of “value storage” and “digital gold” by institutions in 2020, and it is creating a steep upward curve that surpassed the peak of 2017. The Bitcoin market, which was used to be called a non-mainstream or speculative market, has sharply risen in price to keep pace with the expansion of currency liquidity in the traditional market. This is because it is a means to hedge the risk of the value decline in currencies. The price rise that responded to the recent crisis was in line with the direction of gold.

Now let's take a look at which direction gold and Bitcoin respectively are moving recently.

Source: investing.com
Source: investing.com
Source: investing.com
Source: investing.com

The above four charts are the Gold and Bitcoin charts for the last month and the last week. The monthly charts together showed a strong upward direction; at least until Bitcoin started to show a sharp decline as the bull run slowed down from the 11th. When you look at the charts for the last week, there is an interesting phenomenon. The price of gold began to decline from the beginning of the week, while the price of Bitcoin rose and peaked until the plunge in the second half of the week. Before the plunge, experts are interpreting that some of the money that was invested in gold has moved to Bitcoin in the period when the gold and Bitcoin moved in reverse.

Bitcoin's market cap is still insignificant compared to the total market cap of gold. Yet, due to the high volatility of Bitcoin, it is evaluated that it is not enough to increase its popularity as a “value storage” in traditional financial markets. It will be a chance to test out Bitcoin's real position in the financial market by looking at how much of gold's share will Bitcoin take over, and how much will the market cap of Bitcoin go up compared to the one of gold.

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MCS Team

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Published 3 months ago