Gold is set to boom. What does that mean for Bitcoin?
The coronavirus-driven economic downturn has prompted Bank of America to revise its price forecast for gold upwards, bringing its prediction to $3,000 in the next 1-2 years. But despite being warring assets, experts believe this may be positive for Bitcoin.
In the last few weeks, central banks have flooded the global economy with fiscal stimulus in a bid to re-inject some life into the markets. In the US, the Senate has signed off on a $2 trillion fiscal stimulus package to offset the effects of the coronavirus.
As a consequence, safe-haven assets, such as gold, are on a roll. On April 14, the precious metal reached $1,700 per ounce—breaching a 7-year high as investors looked to offload risk. Now, with little end to the economic turbulence in sight, Bank of America has proposed that this figure may near-double within the next two years.
Bitcoin’s halving is just around the corner
In the meantime, Bitcoin is set to undergo a significant supply shock. The halving—as its name suggests—will sever Bitcoin’s block reward, capping its annual rate of supply. Some believe this quadrennial event will raise Bitcoin’s value proposition.
Among the believers is Bitcoin bull and venture capitalist, Tim Draper. According to Draper, Bitcoin’s finite supply protects it against inflation following governmental meddling.
“The flood of dollars into the market will dilute the value of the dollar. People will move to certainty. There are always only 21 million bitcoin. It is secure in that it will never be diluted by political manipulations,” Draper explained to Decrypt. “Gold is nice for jewelry and some electronics and operates by supply and demand, like any commodity. It is bulky and heavy.” Gold is not as good a currency as Bitcoin, Draper pointed out; it’s “not easy to buy a cup of coffee with gold. Bitcoin is just better currency.”
Bitcoin and gold in harmony?
However, Bitcoin evangelist and co-founder of Morgan Creek Capital Anthony “Pomp” Pompliano, doesn’t believe there needs to be a trade-off between gold and Bitcoin. Speaking to Decrypt, Pomp explained that resistance to debasement provides a bullish narrative for both assets.
“Bitcoin and gold both have sound money principles,” he told Decrypt. “The macro environment would suggest that assets with those principles will do well coming out of the current liquidity crisis that we are in. If that plays out, both Bitcoin and gold should do well at the same time.”
Pomp also suggested that Bitcoin’s volatility makes it a more attractive asset. “Bitcoin has more volatility than gold, so I would expect Bitcoin to outperform gold,” he added.
Still, as a tried and tested hedge against monetary debasement and inflation, gold arguably has a slight edge over Bitcoin —especially when it comes to luring traditional investors.
Nevertheless, with the virus shuttering supply routes and gold refineries, access to the gold market is becoming restricted. Jason Deane, an analyst at Quantum Economics, believes that retail investors may seek an alternative.
“Bitcoin is well placed to act as a store of value for those who don’t easily have access to gold, such as the retail investor, who may well find themselves looking for alternatives as their dollars devalue in time,” he told Decrypt. “This is likely, in my view, to lead to a Bitcoin price increase, but this won’t happen immediately after halving. Like gold, it will take time for effects of both QE and the reduced supply of Bitcoin to filter through.”
The consensus appears to dictate that gold’s rise may be a boon for Bitcoin either way. But as they say, nothing in life is guaranteed—and that goes double for the crypto markets.