Gold has been rallying alongside bitcoin the past few months, and with this move in gold, there has been an increase in traffic at precious metals sellers as consumers unload expensive watches and precious metals.
What does this signify for bitcoin, if anything?
Why the Gold Rally?
Pawnshops have existed for centuries. Stores that specialize in buying gold cropped up during the financial crisis. With unemployment soaring and gold pushing $2,000 per ounce, citizens across the country flocked to pawn shops to sell their jewelry, precious metals, and expensive brand-name watches.
Eventually, gold prices dropped, the supply of sellers was exhausted, and the plethora of gold shops closed up. Domestic pawn revenues returned to their secular norm of 1-2 percent annual growth.
Gold spiked to over $1,400 for the first time in almost six years last month, and that brought out remaining supply from 2009 as well as supply that has been created over the past few years.
It’s generally difficult to ascribe any reason for movement in precious metals. Gold is usually inversely correlated to the dollar, but not correlated to interest rates. The yellow metal tends to rally on fears of a slowing economy.
There’s only slight anecdotal evidence regarding any kind of correlation between gold and bitcoin, and this recent rally seems to torpedo that relationship.
The question for bitcoin traders is whether holders will dump BTC in favor of gold.
Why might they do that?
As a bitcoin skeptic, I see no intrinsic value to bitcoin. Nor is it a “store of value” as some people claim.
Because gold has centuries of perception behind it as both a store of value and something precious that carries intrinsic value, will BTC holders make a move out of cryptocurrency into something more tangible?
My guess is they will not in any material way.
That’s because bitcoin whales and holders are true believers. They pile into bitcoin and speculate on it for the very reason they ignore gold. They believe that cryptocurrency is “the future.”
Bitcoin Holders Aren’t Going Anywhere
Bitcoin true believers always argue fallaciously that “gold’s value is entirely psychological, so what makes bitcoin any different?”
Since bitcoin has far more volatility and is more fun to trade, they foolishly stick with the equivalent of throwing money at the casino.
So for those crazy enough to hold bitcoin – the dumb money – the move in gold is not of concern.
You have much bigger things to worry about, such as the fact that bitcoin has a 95 percent probability of delivering you an average annualized return of 60 percent, plus or minus 160 percent.