Bitcoin now seen as inflation hedge like gold

The correlation between Bitcoin and gold has strengthened significantly, suggesting institutional investors increasingly view the digital asset as a hedge against inflation and a store of value, akin to traditional safe havens. This evolving perception marks a shift from Bitcoin’s earlier status as a purely speculative instrument.

Bitcoin’s Evolving Role

Once primarily considered a currency, Bitcoin has matured into the dominant cryptocurrency, commanding over 55% of the total crypto market capitalization. This evolution mirrors gold’s historical trajectory from a medium of exchange to a primary store of value. Analysts, such as Andrei Grachev, managing partner at DWF Labs, observe that this shift in perceived utility explains Bitcoin’s increasing price movements aligning with gold’s dynamics.

Scarcity as a Key Factor

Both Bitcoin and gold derive their value as stores of wealth from scarcity. Gold’s supply growth is slow, with annual production adding just over 1% to the existing stock, making it difficult to quickly scale supply in response to demand. Bitcoin, however, possesses a fixed supply, with the final token expected to be mined by 2140. This inherent scarcity, measured by its stock-to-flow ratio (existing supply relative to annual production), has positioned Bitcoin to potentially surpass gold’s scarcity advantage. When considering M2 money supply growth, Bitcoin has consistently reached new highs, whereas gold remains below its 1980 peak.

Institutional Confidence and Volatility

Despite Bitcoin’s historically higher volatility compared to gold’s long-term average of approximately 15%, its legitimacy has grown, leading to a reduction in its price swings, though it has averaged around 40% over the past five years. This increased acceptance is reflected in institutional adoption. Analysis from BlackRock suggests Bitcoin serves as a unique diversifier, often uncorrelated with traditional assets. In numerous geopolitical crises, Bitcoin has demonstrated a tendency to outperform gold over 60-day periods. Tether’s strategy of investing in both Bitcoin and gold further underscores their perceived complementary roles as inflation hedges. CEO Paolo Ardoino has highlighted that both assets function as long-term stores of value.

Market dynamics are also influenced by broader economic factors. With ongoing concerns about potential tariffs and elevated geopolitical risks, investors are actively seeking assets that can preserve wealth. Gold has experienced a substantial rally, reaching new all-time highs driven by these uncertainties. While spot gold has seen a modest increase, and gold futures have climbed, Bitcoin has experienced a recent decline, though it has previously reached significant peaks. The ongoing narrative around monetary policy, with entrepreneur Anthony Pompliano noting the expectation of continuous money printing, further bolsters demand for hard assets like both gold and Bitcoin.