The emergence of digital currencies such as Bitcoin (BTC) has shed new light on the role of gold as a store of value. Although the two assets have different risk profiles and correlations, many investors are increasingly gravitating towards BTC – mainly due to its ability to generate huge returns.
Opinions are divided on this issue: while financial educator Robert Kiyosaki, for example, recommends holding both, precious metals analyst Peter Spina considers the digital asset’s role as “digital gold” to be a complete failure.
Both investments experienced significant price movement during 2024. At the time of publication, BTC is trading at $66,640, a year-to-date (YTD) gain of 57.88%, although trading has been volatile since late September. The cryptocurrency has frequently and unsuccessfully tested the psychologically important $70,000 mark.
In contrast, gold, which is up 32.69% year-to-date, has seen a much smoother price action – the shiny metal is in a historic two-year bull trend, and this clear uptrend should deliver record gains in 2024.
This is a fairly significant discrepancy in returns, but one strategist stressed that the tide could turn in the commodity’s favor.
Key Ratio Points to Gold’s Superior Momentum Compared to BTC
Taking the price of BTC and dividing it by the price of one ounce of gold gives us the gold to bitcoin ratio. It’s an elegant tool that offers a simple way to measure the performance of two assets.
If the ratio increases, the virtual asset outperforms the precious metal; if it decreases, the opposite happens. And in fact, the ratio has been declining since March, as shown in a chart posted by senior commodity strategist Mike McGlone in the X-post.
The ratio’s highest performances included two peaks in 2021, reaching 37 amid strong performances in the S&P 500. A recent, albeit smaller, high of 34 in March 2024 was followed by a significant decline in the ratio.
At the time of publication, one BTC was worth approximately 24 ounces of gold—as the cryptocurrency struggles to break higher while gold sets new all-time highs, the ratio looks set to decline further.
The key difference this time, McGlone noted, is that the S&P 500’s strong performance is not correlated with the digital currency’s equally strong performance. According to the analyst, this could become a headwind for risk assets in the future.
While there are arguments for higher cryptocurrency returns, the fact that the gap is closing, along with Bitcoin’s higher volatility, means that gold’s role as a safe-haven asset won’t be disrupted anytime soon.
