Bitcoin (BTC) has been touted as a form of “exponential gold” that has the potential to outperform traditional precious metals during times of high inflation, according to Jurrien Timmer, Fidelity’s Global Macro Director. In a recent series of threads, Timmer highlighted the distinct risk-return ratio of Bitcoin compared to assets like gold, stocks, or treasury debt. He stated, “In my view, Bitcoin is a commodity currency that aspires to be a store of value and a hedge against monetary debasement. I think of it as exponential gold.”
The Role of Gold and Bitcoin
While acknowledging gold’s status as “money,” Timmer pointed out that gold is often seen as too deflationary and cumbersome to function effectively as a medium of exchange. However, gold has historically gained market share relative to GDP during periods of substantial money supply growth, such as the 1970s and 2000s. On the other hand, Bitcoin has gained attention from hedge fund managers who compare it to “digital gold” due to its limited supply compared to fiat currencies like the dollar.
Volatility and Risk-Reward
A notable difference between Bitcoin and gold is their volatility. Bitcoin exhibits approximately four times the volatility of gold, causing criticism at times. However, this volatility also presents significant potential gains. Timmer highlighted this aspect, stating, “Yes, Bitcoin is down 54% from its two-year high, but it is also up 84% from its low.” In comparison, government bonds are unable to match Bitcoin’s risk-reward potential.
Gold, meanwhile, currently trades at around $1978 per ounce, representing a 1% decline from its two-year high and a 22% increase from its two-year low.
Bitcoin’s Relationship with Gold
Timmer noted that despite some similarities and periods of parallel trading, Bitcoin remains largely uncorrelated with gold. Instead, it shows a significant (though diminishing) correlation with the S&P500. Furthermore, it appears to demonstrate a negative correlation with the US Dollar and US Treasuries. Timmer questioned the notion that Bitcoin and gold are playing on the same team, suggesting that they may be engaged in different games. However, this distinction may not necessarily be a disadvantage.
“If Bitcoin and gold play on the same team but in different games, then that’s not too bad.”
As Bitcoin continues to garner attention and establish itself as a potential inflation hedge, the question of its relationship with gold and other traditional assets remains a topic of debate.
