There is no consensus yet on whether bitcoin is a protective or speculative asset. Few investors and institutions invest capital in the first cryptocurrency for protection against inflation. Studies of the correlation between bitcoin and various asset classes show that it behaves differently in different market situations.

Why is bitcoin not recognized as digital gold?

The main function of gold as an investment asset is its ability to maintain and increase its value during crises. When there is a prolonged period of recession in the economy, investors sell high-risk assets – which include stocks, for example – and buy means of preserving value, particularly gold.

Since the launch of the cryptocurrency’s main network, its price has risen consistently from year to year. But over shorter periods, bitcoin is a volatile asset. This makes it akin to high-risk assets. 

Various researchers have repeatedly found correlations between bitcoin and the stock market. In April 2022, Arcane Research said the movement of the first cryptocurrency was closest to tech stocks, which are considered a riskier segment of the stock market.

A few months before that, analysts at Goldman Sachs had warned that bitcoin’s price depended on macroeconomic factors and that its value could fall due to a tightening of Fed policy. That is exactly what happened later.

According to Bank of America, since 2021, the price of the first cryptocurrency has correlated with the stock market. As an example, the bank researchers cited the correlation with the key stock indices – S&P 500 and Nasdaq 100. Therefore, bitcoin is not a defensive asset, the bank believes.

What are the arguments for the digital gold thesis?

There are also arguments that speak in favor of bitcoin as a store of value. First, bitcoin’s protective properties have been talked about by prominent investors. The thesis of “digital gold” in 2021 was supported by American financier Ray Dalio, although he later noted that the first cryptocurrency lost out to gold.

In April 2022, former BitMEX chief Arthur Hayes opined that bitcoin would eventually become a defensive asset because of Fed policies and the depreciation of the dollar.

Second, a study by ForkLog found that during the 2020 crisis, the first cryptocurrency correlated mostly with the precious metal.

Third, bitcoin can change its correlation with different asset classes depending on market conditions. The view that the value of the first cryptocurrency is starting to coincide in behavior with risky assets during market declines was expressed in 2020 by The Block researcher Larry Chermack.

Another pro argument is the actual use of bitcoin as digital gold. Despite its high volatility, a lot of large companies already hold savings in the first cryptocurrency. According to the Bitcoin Treasuries website, Tesla, Core Scientific and Square are among them. 

One of the main proponents of bitcoin as a protective asset is MicroStrategy CEO Michael Saylor – his company owns almost 130,000 BTC.

Also, bitcoin is already being used in government reserves. Since 2021, the government of El Salvador has been buying bitcoin for its treasury.

JPMorgan believes that bitcoin has the potential to become digital gold due to its acceptance among institutional investors. but the first cryptocurrency’s dependence on inflation holds it back from achieving this goal.