If Bitcoin Stumbles, What Will Happen to Gold?

Friday, December 1, 2017

Earlier this week, Bitcoin’s success (and stumbles) were the stuff of mainstream headlines. Not only did Bitcoin ascend to higher ground, but it just as quickly lost that higher ground with a swift 20% stumble. This leads many to wonder what’s really going on with Bitcoin—and whether or not Bitcoin’s stumble in the future could lead to more demand—or less—for the precious metal known as gold.

Bitcoin and gold

Bitcoin or Gold: What’s Better?

With many investors seeing gold and Bitcoin as two peas in a pod, what’s clear is that the two separate assets have to be seen as distinct entities. While they both serve as hedges from the stock market, they’re polar opposites in just about every other way. One is old, the other is new. One is seen as stable; the other has a speculative reputation.

Those who have made loads of money from the sale of Bitcoin in the past, however, are quick to point out just how correct they’ve been thus far.

Others aren’t so positive about Bitcoin’s chances.

“Bitcoin is a bubble that will eventually explode,” says notorious gold-bug Peter Schiff. Predicting last month that Bitcoin was headed for a crash in prices, Schiff did believe that Bitcoin could just as easily get to $10,000 as it could to $20,000—and that has recently played out (partially) in reality, with Bitcoin moving up past $10,000 before its stumble.

With 389% returns on the year, Bitcoin has all the hallmarks of a successful investment for many people—but is it really like the “tulip” craze in history, or is cryptocurrency here to stay?

Gold’s Prospects During a Bitcoin Boom

Gold has seen modest improvement on the price throughout the year. Without a hallmark moment like 2016’s Brexit vote, there hasn’t been any impetus for drastic change in the price of gold. However, even gold bugs might feel confident that investors are looking for hedges these days—with Bitcoin’s surge in prices serving as evidence that this is the case.

If hedge money is really moving to Bitcoin, it’s possible that it’s absorbing some of the increase in demand that otherwise would have gone gold’s way. But since Bitcoin is an entirely different class of money than gold—a cryptocurrency—it’s possible the two aren’t correlated as tightly as some gold bugs would like to think.

Gold’s Status as a Hedge Remains in Tact

Perhaps the most important revelation to come this week as Bitcoin rose quickly and just as quickly stumbled was that the price of gold remained stable. That might portent for the future of both investments—gold providing the stable hedge that helps inspire portfolio confidence, and Bitcoin serving as a volatile but potentially explosive vehicle in which to park money.

Whether or not the two will remain on their respective tracks will remain to be seen. However, gold’s status as a hedge against the market remains strong, even with investors flocking to cryptocurrencies. It’s possible that there is room for both if stock markets should start cracking.

Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.