A Catalyst for Collapse
Inflation, FED intervention, Equities vs Commodities and considerations on the mitigation of risk in uncertain times
Satoshi Nakamoto created Bitcoin in 2009 and popularized it in his paper entitled “Bitcoin: A Peer-to-Peer Electronic Cash System.” A few years after, Bitcoin cryptocurrency started to gain adoption and was recognized as an asset later on.
However, there were some assets in existence before the Bitcoin cryptocurrency. Some of them were precious metals – and more particularly gold. Gold has a deep historical antecedent of being a store of value and wealth.
But over time, a market correlation between gold and Bitcoin started becoming inevitable and apparent. In simpler words, a connection developed between these two assets—gold and Bitcoin—such that when gold price rises, Bitcoin’s come down; and vice versa.
What could have caused this inverse direction of both assets? We will demystify this subsequently:
The cryptocurrency market is volatile. That is, it responds to several factors including the market forces which constitute demand and supply.
Hence, high demand and purchase of Bitcoin will dictate a bullish move for the coin. If it were to happen the other way round, the price of the coin will drive into a bearish market.
Aside from that, sentiment is one big factor that affects the market forces of Bitcoin. Most times, this has always been the cause of several Bitcoin dips.
For example, in May this year, Elon Musk—who is the Bitcoin whale—tweeted that Tesla will stop accepting Bitcoin. That very hour, the tweet caused the demand for Bitcoin to halt, and the market dropped by 12%.
When Bitcoin slopes down in value—or what you might otherwise call the dip—it is an indication of the other factors that affect its volatility. This stark unpredictability is the main reason gold spikes up when Bitcoin dips.
On a relative scale, gold is not as volatile as Bitcoin. Although it also responds to the market forces, like every other commodity or asset, reports have always shown that gold tends to be more stable.
Moreso, it is not moved by sentiment. Thereby guaranteeing surer stability of investment. Previously, and even now, most people look at gold as a hedge against inflation.
However, gold seemed to have turned to be a hedge against Bitcoin dips as well. Bitcoin reached an ATH of $60k in April this year and dipped to as low as $29k before making some gradual market corrections – which analysts predicted might last throughout this year.
Gold on the other hand, had its price at $1771 in April 2021. As of August, it is at $1,780 making its gradual increase and stability very evident. BBC forecasts for gold to even hit $2k before the end of 2021.
Because of this, JP Morgan reported that most institutional investors are preferring gold over Bitcoin. That explains the reason why gold is bullish when Bitcoin dips.
More importantly, investors are seeing more reasons to invest in digital gold that would serve as stablecoins. On this note, Xbullion—one of the leading digital gold stablecoins—is going to be listed on a leading exchange soon. Follow us on our socials – Twitter, Linkedin, and Facebook – to be abreast of this.
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