By Alex White, Managing Director, Co-Head of ALM at Gallagher
It’s potentially easier to leave a war-torn country with Bitcoin than gold (though possibly harder to pay for things along the way), and it has value by enforced scarcity. In a high inflation world, for example, where fiat currency is printed at volume and ceases to have scarcity value, this could be a major advantage of Bitcoin.
That might still be true. But it’s not yet what’s happening.
Firstly, some context. Bitcoin has done extraordinarily well over the last few years, so much so that even with the recent plunge it has still wildly outperformed other major assets
So far so good, but it’s harder to see the interactions. We therefore also show rolling 12m correlations
Aficionados could argue in 2022-2024 that Bitcoin was starting to behave more like gold. Certainly the correlations would have backed that up; but the correlation between gold and equity was also higher. In the last year or so, as gold has risen, Bitcoin has moved far more in line with equity than with gold.
This seems pretty conclusive, but it is only one view. Perhaps inflation paints a different picture. To test, we look at the same rolling 12 correlations with month-on-month CPI. Again, Bitcoin is broadly only correlated to inflation when equities are too.
So is there still a case? Well, it’s worth noting that gold doesn’t seem to be an inflationary asset on this lens either. While Bitcoin is negatively correlated with CPI (-18%), so is gold (-12%). The noise month on month can hide a longer-term economic picture. And that’s tricky for Bitcoin as, even though it has a decent length history by this point, there’s a solid case that it’s a different asset now, with ETFs and institutional money, than it was in the early years. In that vein, it might not be digital gold yet, and may still be seen as a risk-on asset, but that doesn’t mean it won’t ever be digital gold, especially if inflation gets high enough.
For right now though, the digital gold argument doesn’t seem to hold up to reality.
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