Gold vs BTC Risk-On Risk-Off Analysis Q1 2022 | Kneejerk Price Reaction Amid Global Conflict

Key Features

• Why is Gold up and Bitcoin Down?
• Bitcoin is Not Historically Battle-Tested
• Why Bitcoin is a Commodity

Why is Gold up and Bitcoin Down?

As tragedy unfurls in Ukraine, Gold, historically seen as a store-of-value and hedge against macro calamity, is nearing $2000. On the other hand, Bitcoin (BTC) is down nearly 6% at press time. Many investors are scratching their heads at how this could be. Isn’t Bitcoin “built for this?”

Spot gold jumped more than 3% higher on Thursday as Russian forces began their assault on Ukraine. The crypto market has been trying to shrug this off for a week now, with Bitcoin down 14% over the last 7 days. On the other hand, Gold has been trending upwards in the last 7 days. So what gives?

As seen above, the differences are stark. In the red circle, when news of aggression became real, gold spiked and bitcoin dumped. The reasons for this are clear. Bitcoin has been tethered to equities for quite some time, as institutions have piled in. With gold, however, the early 2021 mania that benefitted assets like equities and bitcoin did nothing for the price of Gold.

This is because gold does not trade like stocks and crypto. It is far tamer because capital doesn’t move into “hype” with gold (there is none) as it does with stocks and crypto. The ceiling is lower, and the floor is lower. The average growth rate of gold is currently 6.51%, very modest from the crypto perspective. The change from 1 year ago is near that average, sitting at 6.79%.

The market determines what is and what isn’t. That is to say, the market has molded Bitcoin into a risk-on asset, while gold is risk-off. This flies in the face of all you hear from the bitcoin community above safe-haven narratives and the like. Again, the reality is codified by the market behavior, not necessarily dovetailing with the narrative.

And, at the time of press, a quick chart update: “Gold and Bitcoin retrace back as market risk appetite returns with US stocks closing higher Thursday (02-24-22)” – David Ingles/ Twitter

Chart update: Gold and Bitcoin retrace back as market risk appetite returns with US stocks closing higher Thursday pic.twitter.com/opV5NKx9cv

— David Ingles (@DavidInglesTV) February 24, 2022

Bitcoin is Not Historically Battle-Tested

Gold has always had an upward kneejerk reaction in price during the global conflict. During the 1970s (which saw much instability, including the Iranian Revolution, Iran-Iraq war, Soviet invasion of Afghanistan), gold rose significantly higher. Up 23% in 1977, 37% in 1978, and a wild 126% in 1979. Gold is battle-tested and has a long history in the market in regards to the above epochs.

Source: Cryptosrus.com / Gold’s incredible rise to close the tumultuous 1970’s

Bitcoin is less than 15 years old. Let that sink in. This is why the market kicks it to the curb in these moments. The network is battle-tested, but it is too infantile as an asset class to serve as a safe haven. This will continue to be the case for the unforeseen future, unfortunately.

Why Bitcoin is a Commodity

Bitcoin will, however, begin to behave in this way. Bitcoin is a commodity more than any other crypto asset. This goes for all viable proof-of-work networks like Monero and even Ethereum as it stands. Why? Because proof-of-work requires just that. Work. A physical input, in this case, electricity, is needed to “produce” the commodity that is Bitcoin or Monero.

Unlike proof of stake, which is “pre-mined” and requires no real computational power to produce the tokens. In a world of fiat debt, money-printing gone mad, and global upheaval, the definition of a risk-off asset will be classified by its tamper resistance, liquidity, and supply (inflation). This will be gold, and yes, it will be Bitcoin.

As JP Morgan said: “Gold and Silver are money. Everything else is credit.” Certainly, you can add Bitcoin to that shortlist, the market will realize it one way or another.