The return of the description of Bitcoin as a safe haven, after its performance was linked to gold and silver
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Answer The return of the description of Bitcoin as a safe haven, after its performance was linked to gold and silver
Bitcoin’s reputation as a safe haven has been shaken after the crash of traditional financial markets in March as a result of the spread of the Corona virus, as the price of Bitcoin followed the price of collapsed stocks and also fell to low levels.
Then, for a period of time, the price of the bitcoin went in line with the stock market, to get rid of its dependence later and soar high with gold and silver, thus returning its description as a safe haven again.
Bitcoin’s correlation with gold is at an all-time high:
Observing the way Bitcoin transacts is interesting, as it has been observed that Bitcoin’s performance has been tied to traditional markets for a long time.
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But this time around, the leading cryptocurrency appears to be largely associated with gold and silver.
As shown in the chart above, the price of bitcoin and the price of gold and silver have been behaving almost the same for the past two weeks during the recent bitcoin rally.
Yesterday, gold prices reached a new all-time high above $2000.
The precious metal has performed impressively throughout the entire year and especially after the market plunge in mid-March, as it has managed to increase its value against the dollar by about 40% since then.
Data from Skew also shows that the correlation between bitcoin and gold is at an all-time high.
However, the investment definition of both assets remains markedly different, according to recent research by banking giant JPMorgan.
Nikolaus Panegirzoglu, a director of the strategy team at the bank, concluded that the baby boomers between 1946 and 1960 focused on investing in gold and government bonds, which are usually known as “safe” and less volatile.
On the contrary, the younger generations are allocating larger sums to the more risky assets that are stocks and Bitcoin.
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Is the link between bitcoin and gold good for bitcoin?
Many consider Bitcoin’s correlation with gold a positive sign.
In fact, taking into account some of the fundamentals characteristic of both origins, this may be true.
Both bitcoin and gold are scarce as there is only a small amount of both assets.
Which makes it reasonable for people to hold bitcoins rather than sell them because their value must rise, provided the demand for them remains the same, or increases over time.
Bitcoin proponents support this thesis, based on the fact that there are a lot of industry players who are working tirelessly towards increasing awareness and adoption of more cryptocurrencies.
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On the other hand, this directly contradicts what Satoshi Nakamoto meant for bitcoin.
Bitcoin was planned to be a peer-to-peer electronic cash system, i.e. the use of Bitcoin as a medium of exchange and not as an investment method stored in the wallets of its holders.
At the moment, there is little incentive to spend Bitcoin, given the constant printing of fiat currencies that will eventually lead to its devaluation.
In other words, why would someone want to spend Bitcoin, which should only increase in value due to its inherent scarcity, while the dollar and other currencies are massively inflated?
Read also:
An investment bank recommends bitcoin over gold
Bitcoin price outperforms gold by 100% this year
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