With Bitcoin breaking records in price across a few exchanges this week, and even despite a dip, looking set for further gains and a move above $20,000, investors seem to be right behind this rally.
But, where the money is coming for this rally is interesting to note — especially considering that the last rally to $20,000 came from speculators and hype. It appears this rally is being driven by major investors and Wall Street, and gold investors.
The rally in Bitcoin has come at the expense of gold as the stable and secure investment has been put aside in favour of the rising digital asset.
Coincidence or rotation?
It has been noted that gold ETF holdings took a dive just as the latest rally started picking up pace through October. If this is a simple coincidence, or perhaps the beginning of a rotation that would have a major impact on Bitcoin and the cryptocurrency market, as well as the Gold market, is yet to be seen. But the debate is now heating up on whether the world’s largest digital currency can one day rival bullion as an inflation hedge and portfolio diversifier.
“Gold was really the safe asset of the past world and baby boomer generation,” said Jean-Marc Bonnefous, a former commodities hedge fund manager turned crypto investor. “Now it’s being replaced by automated assets like Bitcoin.”
Previously, Bitcoin has been rather looked down upon by major Wall Street type investors who have left it to the tech fans and wild speculators. But, recent advances and interest in the digital currency have seen it take amore mainstream curve.
Offerings from Grayscale are on the rise, and even PayPal is giving its users a chance to buy their Bitcoin meaning that its legitimization could well drive people away from the traditional, yet boring, Gold investment.
Long run battle
Bitcoin’s market capitalization is currently only 3.1% the size of gold, according to James Butterfill, investment strategist at CoinShares, which sells investments in digital currencies. If that increased to 5%, it would imply a price of $31,300 compared to around $18,700 currently, he estimated.
“Bitcoin is establishing itself as a credible store of value,” Butterfill said. “This is particularly appealing during this time of unprecedented loose monetary policy. For these reasons investors are naturally comparing it to gold.”
