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Can Bitcoin Replace Gold As the Safe-Haven Asset?

Oct 20, 2020

Experts quite a while have attempted to propose a correlation between Bitcoin and gold as safe asset to invest. Both assets are suitable as the crypto asset and the gold are used as a macro guarantee against inflation, and the devaluation of fiat currency and traditional equities in unstable markets. As the Bitcoin boom continues, it could overtake gold as a safe-haven asset.

Nevertheless, evidence could be vague and show shifting standards in terms of direct correlation. Many reports have shown that Bitcoin’s connection to the price of gold had weakened as the trading volume declined at the beginning of the year. However, the crypto exchange noted on September that Bitcoin’s rally to an intra-month high of $12,480 coincided with NASDAQ tech giant, Microstrategy buying $250m of the cryptocurrency. Weeks later, the company doubled down, purchasing a further $175m of Bitcoin, taking its total holdings to 38,250 Bitcoins.

Bitcoin’s was going strong in spring 2020 while gold and silver was slightly going up and oil prices was going down. “Bloomberg” figures shown that Bitcoin is by far 2020’s best performing asset, up 66% and beating gold into second place and at the moment cryptocurrency has an advantage over gold.

With the growing adoption of decentralized finance, users can stake their cryptocurrency and receive a yield in return, ranging anywhere from 6.8% to over 12% for stablecoins. This is remarkable increase comparing to 0.5% or less for long-term US Treasury bonds and 0% return from gold.

At the moment decentralized finances as a sector is attractive - the total value in these contracts enacting these kinds of payment systems and loans now exceeds $11bn, up from $691m just nine months ago. Considering that money is invested in decentralized finances, it is understandable to raise a question which of these values will be supreme against other.

Taking into account that major economies are backing negative interest rates this leaves investors paying banks to keep their funds, and with central banks extending enormous easing programs, capital avoidance from bonds in search for the yield is likely to more advantageous to Bitcoin than it is to gold. Also, gold prices have now stepped back from their record-breaking all-time high of $2,000 per ounce, settling around $1,800.

On the other hand, some analysis shows that this price could be temporary and suggests that gold would hit $3,000 per ounce inside 18 months. This could be the sign that institutional investors moving away from simply buying gold as a safe haven, instead looking at the cryptocurrency as their first investment in unstable markets.

Answer to these questions may find in some recent regulatory changes from the mayor economies. For example, Nigeria has Africa’s largest GDP, of more of $400bn. In September the Securities and Exchange Commission of Nigeria announced that it will be regulating the trade of digital currencies in the country and clearly defined crypto assets as securities. Such clarity leads to faster innovation and more investments.

Also, Switzerland, a known store of value for the world’s richest in its aged private banking network, recently amended legal code to set new standards for crypto trading. Further, EU and US recently brought legislative changes regarding cryptocurrency industry by providing standardization, legal clarity around cryptocurrencies and base for regulatory consistency across jurisdictions.

Following world-wide trends, more activities are expected, therefore our team would gladly help you to obtain a Crypto License in Switzerland or Virtual Currency Provider License in Estonia.

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