The price of Bitcoin has been hugely outperforming gold throughout November. While BTC is aiming for an all-time high as it hovers above $19,200, gold is declining.
Since the November peak, the price of spot gold has declined by over 8%. In the same period, BTC has increased by more than 24%, demonstrating a parabolic rally.
Why is Bitcoin outperforming gold so strongly?
There are two reasons gold has been declining throughout November.
First, the prospect of nationwide vaccine distribution in early 2021 has sent the stock market soaring. Gold theoretically performs well when the financial sector slumps. Hence, the strong momentum of U.S. stocks contributed to gold’s slowing momentum.
Second, there might be less appetite for safe-haven assets despite the risk of inflation. There are new assets, like BTC, that could act as an inflation hedge but also has the potential for massive long-term growth.
High-net-worth investors and billionaire fund managers seemingly perceive Bitcoin as a beta play to gold.
Bitcoin is less liquid and has a “thinner” market than gold, billionaire Wall Street hedge fund manager Stanley Druckenmiller said.
But, due to the discrepancy in market size and liquidity, investors also do not need to hold large amounts of Bitcoin to obtain decent exposure. Druckenmiller said on CNBC:
“Frankly, if the gold bet works the bitcoin bet will probably work better because it’s thinner, more illiquid and has a lot more beta to it. It has a lot of attraction as a store of value to both millennials and the new West Coast money and, as you know, they have a lot of it.”
The confluence of the strengthening perception of Bitcoin as an established store of value and an inflation hedge that has long-term growth potential is likely fueling BTC’s rally.
“Bitcoin has already made significant ground on gold — going from whitepaper to over $200 billion in market capitalization in under a decade. Today, the market capitalization of above-ground gold is conservatively $9 trillion. If we are right about using a gold framework to value bitcoin, and bitcoin continues on this path, then the bull case scenario for bitcoin is that it is undervalued by a multiple of 45.”
The perception that Bitcoin is quickly evolving into digital gold is seemingly causing the demand for BTC to increase. All the while, the appetite to hedge assets with gold during a period in which the U.S. stock market is heating up remains low.