Bitcoin vs Gold! Price Reaction in a Financial Meltdown
When it comes to Bitcoin vs. Gold, traditional investors and Crypto Enthusiast have a lot to say. Before we start, let’s know what a financial meltdown really is? In simple terms, it is an event marked by the falling purchasing power and loss of confidence among the investors. This makes it difficult for thousands of businesses to reach their annual targets. The global crisis also influences the price of several commodities, equities, and this also includes Cryptocurrencies such as Bitcoin!
Background – The Financial Crisis of 2006-2008
A global crisis leads to job losses and a massive slash in real estate prices. During the crisis, the prices of goods and services change rapidly. The last known global crisis occurred in the year 2006-2009. And many people believe that Satoshi Nakamoto introduced Bitcoin as a solution! Anyway, how a global catastrophe will affect Cryptocurrency prices, and will it be the end of Bitcoin?
Bitcoin works as an asset the same as gold, except it doesn’t have any physical existence. To get a better understanding, we need to see what happens to such assets that are a store of value or safe-haven during a global economic crisis. Below is a picture depicting the yearly price changes of gold during the pre-and post-crisis of the recent financial crisis.
From the table, we can conclude that assets like gold spikes during times of uncertainty. This is because people feel their money is safer in such commodities rather than locked in cash or other assets such as stocks and real estate. Also, investors hordes such assets to increase or maintain their wealth against rising inflation and declining stock market index. People also flock to gold during a crisis because it has an intrinsic value and acts as a safe-haven asset for investors.
Bitcoin vs. Gold
But what about Bitcoin? Will its value decline during a financial crisis, or will the traders see new highs? The answer is simple. Bitcoin and gold depict a lot of similarities. They both function as a store of value and are a safe long-term investment, having an intrinsic value. Besides, many people also refer to Bitcoin as digital gold because of the likeness it has with gold.
Today you can buy Bitcoin anywhere in the world without leaving your house. Bitcoin has greater feasibility than gold and is divisible, transportable, and safer. It empowers decentralized finance and is a lot lucrative for investors. With a fixed supply and gradually increasing demand, Bitcoin’s price is likely to react similarly to gold during times of financial meltdown.
Uncertainty will cause Bitcoin’s price to rise
We have seen examples where Bitcoin price has increased in local exchanges during times of economic turmoil and loss of confidence among investors. A global financial crisis is a period of considerable uncertainty. Most of the stock and asset prices start to decline, and investors flock away from traditional assets. Such events create a room for safe-have assets, including Bitcoin.
Below are separate cases where Bitcoin was selling at a premium price because of confusion and uncertainty among the people and investors.
Bitcoin Price during Us-Iran Tensions
Whether it is about Bitcoin trading at 85% premium in Zimbabwe or its adoption in Venezuela because of economic crisis, we can not deny how Bitcoin’s price reacted during the US-Iran tensions in January 2020. After the escalation between the two countries, both Bitcoin and Gold followed the same pattern and reached new highs. Bitcoin went as much as 10% as investors flock to the digital gold for securing their portfolios and cut their losses in stocks and conventional assets. However, the price crashes back after U.S. President Donald Trump’s downplayed the situation, suggesting that “Iran appears to be standing down.”
There are multiple events where Bitcoin price has increased because of economic turmoil. Whether it is about specific geography or the global economy, investors increasingly see Bitcoin as an escape from a volatile financial situation and falling stock markets. Besides, Bitcoin can be brought, sold, and transferred to any country, giving it higher mobility vs. gold, which further adds to the trader’s interest during a global financial crisis.
Disclaimer: This is just an opinion and should not influence the decision of the reader.