In 2017, as bitcoin rose dramatically in value from less than $1,000 to a high of $19,000, there was speculation that the cryptocurrency would usurp the traditional role of gold by providing a stable fiat currency alternative. Despite geopolitical turbulence that usually brings value to gold as a safe haven investment, its price remained in the range of $1,200 an ounce, while bitcoin skyrocketed.
With bitcoin seen as lessening demand for gold, this threat proved short-lived, as bitcoin lost more than half its value in a matter of days in early 2018. With some investors having swapped gold to make cryptocurrency purchases, this strategy has been exposed as “rampant speculation” according to the principal of a respected gold exchange-traded fund.
One similarity between the two currencies is their intrinsic scarcity, with the amount of bitcoin produced engineered to decline. This mimics somewhat the traditional scarcity of gold, though without a physical asset to back it up. Analysts point to current trends such as a weakening dollar and commodity demand growth, along with inflation concerns, as moving investors back toward gold.