Bitcoin: Digital gold, or just another speculative asset?

Press Release: Over the past decade, Bitcoin has grown from an underground technological novelty to one of the most talked-about investment assets of our time. It was at the birth of the entire cryptocurrency ecosystem and has now been embraced not only by retail investors but also by large financial institutions and even some governments. Originally intended primarily as a means of exchange, Bitcoin has over the years become more of a store of value in the eyes of its proponents. But is that really the case? Can Bitcoin be considered digital gold, or does it behave more like a speculative stock?

At XTB You can invest in cryptocurrencies through cryptocurrency ETFs or speculate on their price in the short term through cryptocurrency CFDs.

Bitcoin as digital gold?

Bitcoin was originally intended as a deflationary alternative to traditional fiat currencies – a response to the financial crisis, inflation and devaluation of money. Like gold, it has a limited supply (21 million BTC) and cannot be “reprinted” like conventional currencies. That’s why many people believed it would behave similarly to gold – that is, as a safe haven in times of economic uncertainty.

However, the reality is more complex. If we look at the price development of Bitcoin and gold since 2011, Some correlation can be found, but not strong enough to be able to claim that Bitcoin really works like gold. Moreover, while the price of gold increases rather slowly and over a long period of time, Bitcoin is extremely volatile and price fluctuations of tens of percent are not uncommon.

Bitcoin and gold price development, monthly candles

Source: xStation (XTB investment platform)

Past performance is not a reliable indicator of future performance. 

Does Bitcoin behave more like a stock?

More interesting is the comparison of Bitcoin with stock markets, specifically with the S&P 500 index. The historical correlation of Bitcoin with gold ranges between 0 and 0,2, indicating a very weak link between their prices. In contrast, The correlation between Bitcoin and the S&P 500 has increased sharply in recent years and in 2023 it even reached the value of 0,6. This means that Bitcoin behaves much more like a stock than as a store of value like gold.

The reason is that Bitcoin's price has increasingly reflected macroeconomic factors in recent years, such as inflation data (CPI), central bank interest rates, and overall investor sentiment. Like stock markets, Bitcoin reacts to both positive and negative economic news.

What does this mean for investors?

Bitcoin is increasingly acting as a risk asset sensitive to global sentiment and macroeconomic factors. If you are considering adding it to your portfolio, it is it should be seen as a speculative investment rather than a stable store of value.

On the other hand Its volatility and ability to weather market turbulence make it a potentially highly profitable investment for those who believe in its future.The key is the right strategy and a long-term investment horizon.

As its market cap grows, Bitcoin's volatility is gradually decreasing, and from a technological perspective it undoubtedly has the potential to become the true digital gold of the future. However, from a price development perspective, it is more appropriate to think of it as a volatile technology stock with great growth potential, but also high volatility.ancof extreme price drops.

If you want to trade Bitcoin and other cryptocurrencies, at XTB you can invest in this sector through cryptocurrency ETFs (ETNs) or speculate on the rise or fall of the price in the short term with cryptocurrency CFDs. More information can be found at: https://www.xtb.com/cz/kryptomeny 

CFDs are complex instruments and, due to the use of financial leverage, are associated with a high risk of rapid financial loss. 69% of retail investor accounts experienced a loss when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford the high risk of losing your funds. Investing is risky, invest responsibly.