Bluford Putnam, chief economist and managing director of CME Group, recently acknowledged that bitcoin competes with gold as an inflation hedge.
According to Bloomberg, gold appears to have a new competitor in bitcoin, in a video posted to YouTube on Tuesday. Given the current range of gold prices, production growth is likely to be characteristic of 2021, he said.
The supply of gold is less clearly defined than that of bitcoin. The asset code sets a maximum limit of 21 million coins for BTC to circulate on a stable operating schedule. Putnam mentioned this feature of bitcoin in his reasoning, although he also noted the unstable nature of the currency. Remember, consistent supply doesn’t mean volatility decreases, he said. In fact, it could mean the opposite, he said, adding:
When supply is relatively inelastic, the dynamics of changes in the demand structure can have a very large and dramatic impact on prices. Bitcoin illustrates this point.
Value stocks or hedges are often a longer-term investment option as a potential defense against inflation and changing global economic factors. As Investopedia notes, the lack of correlation is perhaps one of the most important aspects of investing in safe havens.
We also noted that gold could lose its appeal as a hedge against global political risk, Putnam said. From 2017 to 2020, most gold price ups and downs appear to be directly related to changes in Fed policy, he added. As equities responded to the same driving force, the relationship between gold and equities tended to converge somewhat, reducing gold’s appeal as a safe haven asset.
Gold and bitcoin have surpassed their previous historical price highs in 2020. According to TradingView.com, gold reached a record high in July and broke through the $2,000-per-ounce mark in August. Bitcoin broke its record in December and doubled from there in the following weeks.
Proponents often argue that bitcoin is similar to digital gold, but has properties that make it easier to store and transport. Market leaders are also known for playing off two important assets against each other.
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