Are comparisons between Bitcoin and Gold absurd?
The comparison between Bitcoin and Gold is as mainstream as Bitcoin itself. However, despite the decoupling of the two assets, the group of interested and active investors in both is nearly the same and there is an overlap. In fact, traders and analysts on Crypto-Twitter have been going on about the two assets for over 3 years now.
Chief Economist & Strategist at Rosenberg Research & Associates Inc. David Rosenberg is one of these analysts, with Rosenberg commenting on the same via a tweet dated 15 January 2021. He considered the popular comparisons between #Bitcoin and #Gold and wondered if they are absurd. No one ever talks about the risk that Gold could go to zero, according to Rosenberg, because it can’t.
However, we may have long gone past the stage where Bitcoin could go to zero, way back in 2013. With every Bitcoin halving, the price has climbed higher and there is only appreciation and vertical growth on the price charts. This is the reason why the price has never dropped to pre-halving levels from previous cycles.
The price trends in consecutive market cycles may be evidence enough for price appreciation. However, contrary to what Rosenberg suggested, comparing Bitcoin and Gold may not be entirely absurd.
The comparison exists and cannot be denied, despite the decoupling and tons of parallels drawn between the two assets. Rather than absurd, the comparisons are like goals. They make Bitcoin more mainstream and drive adoption. In fact, one can argue that the entire narrative of “digital gold” is meant to drive adoption.
These comparisons don’t necessitate a copycat rally in prices. So, what is the value addition for a retail trader following these narratives through different phases of the market cycle? Well, the Gold Fractal from the 70s that has been popularized by the media is something similar, and it can be taken as an ideal or goal for Bitcoin’s price rally.
Increased stability and adoption are key to such comparisons. HODLing gold has given relatively high returns compared to stocks and real estate to a certain extent, and Bitcoin’s risk-adjusted returns are better than other mainstream assets. As long as risk-adjusted NVT is higher than other assets, Bitcoin is not going to zero or anywhere near zero.
It would be cause for alarm if institutions started selling and exiting in tranches, however, but that is not happening currently, at least not on the charts. Looking at the current price charts and trade volumes on both spot and derivatives exchanges, that seems to be an unlikely alternative. The comparisons between the two assets may continue well into Bitcoin’s maturity and the fourth halving, however, the impact on trader’s portfolios will be positive in the short-term, based on the drawdowns and narratives of the current price rally.