Gold could see some competition from Bitcoin as a hedge against inflation risk, CME Group chief economist and Managing Director recently admitted.
“Gold seems to have Bitcoin as a new competitor. Given the current price of gold, increased production is likely to be a hallmark of 2021,” Putnam told Bloomberg.
Bitcoin an ‘emerging competitor’ to gold
Gold supply is less clearly defined than Bitcoin. BTC with supply embedded in the code has a maximum supply of 21 million BTC. Putnam touches on the characteristics of Bitcoin and also mentions the volatility of BTC. “It should be noted that fixed supply does not mean reduced volatility,” he added, “it could mean the opposite.”
“If supply is inelastic, the dynamics of pattern changes with demand can have a huge, sudden impact on prices. Bitcoin shows this pattern.”
It is generally believed that lack of correlation with other assets is important in order to function as a hedging instrument against inflation and the changing global economy.
But “gold may have become less attractive as a hedge against global political risk,” Putnam said.
Related: Bitcoin vs Gold in 2021
“Between 2017 and 2020, rising and falling gold prices seem to be more directly related to the Fed’s policy shift,” he added. “Since stocks are reacting in the same way, if the relationship between gold and stocks tends to be closely related, gold is less attractive as a safe haven,” he concludes.
Think we missed something? Let us know in the comment section below.