The largest cryptocurrency in the world set a new record at $ 52.954,49 last Friday, just minutes before going to press, after climbing $ 50.000 two days earlier. Meanwhile, gold fell to $ 1.760 on Friday, hitting its lowest level since July 6, 2020.
In an interview with CNBC on Thursday, US Treasury Secretary Janet Yellen said the proposed $ 1,9 trillion stimulus package could help the United States return to full employment in a year. The Federal Reserve and the US government have already pumped massive liquidity into the system over the past 11 months to support the struggling economy.
Increased fiscal spending is generally seen as a factor of inflation. Both gold and bitcoin (quotation BTC), with their limited inventories, are considered to be hedges against inflation, so both would tend to thrive in the face of higher government spending or central bank money printing.
Big investors now see bitcoin as a better asset than gold
But that's not what's happening now. Gold, a classic reserve asset, is licking its wounds at press time, while bitcoin is continuing its bull run. Since August, the two assets have mostly moved in opposite directions, convincing Michael Saylor, CEO of payments firm MicroStrategy, that cryptocurrency is a better inflation hedge than gold. The business intelligence firm used a significant portion of its cash reserves to invest in bitcoin.
The divergence between the two has become pronounced since the start of the year, with bitcoin seeing a sharp rise from $ 30.000 to $ 52.000, while gold has dropped from $ 1.951 to $ 1.760. This has sparked speculation that bitcoin is bouncing back at the expense of gold.
Traditional market analysts associate gold losses with rising US treasury yields. The 10-year yield set an 11-month high of 1,33% on Wednesday and gained more than 35 basis points this year. With authorities calling for more spending, yields could continue to rise, keeping gold under pressure.
Could Bitcoin go back down?
If the rally in bond yields continues, it could end up hurting both bitcoin and gold. First, it could trigger a rotation of the money from stocks to bonds. The resulting decline in equity markets and the strength of the US dollar could lower the value of bitcoin.
Furthermore, further bearish pressure could come from the decline in the global stock of negative yielding debt. The tally has dropped by $ 3 trillion this year, falling below $ 15 trillion, the lowest since September. Compared to the original purchase price, a bond with a negative yield offers less money at maturity. Investors typically turn to valuable assets like gold and bitcoin when the amount of bonds offering negative yields is increasing.