CME Group’s chief economist and executive director Bluford Putnam recently admitted that Bitcoin competes with gold as a hedge against inflation.
“Gold appears to have an up and coming competitor in Bitcoin,” Bloomberg said for a video posted on YouTube Tuesday. “Given the current price range for gold, it is likely that an increase in production will be a feature by 2021,” he said.
The gold supply is less clearly defined than that of Bitcoin. BTC is built into the asset’s code and advertises a set limit of 21 million coins to be put into circulation on a fixed mining schedule. Putnam mentioned this property of Bitcoin in his justification, although he also noted the volatility of the coin. “Please note that firm offer doesn’t mean less volatility,” he said. “In fact, it can mean the opposite,” he said, adding:
“When supply is relatively inelastic, the dynamics of shifting patterns with demand can have a very large and abrupt effect on prices. Bitcoin illustrated this point. “
A store of value or a hedge often represents a place where long-term value can be set as a possible protection against inflation and changing global economic factors. The lack of correlation can be a key aspect of safe haven assets, as Investopedia notes.
“We also found that gold could become less attractive as a hedge against global political risk,” Putnam said. “For the 2017-2020 period, most of the ups and downs in gold prices appear to be primarily directly related to changes in Fed policy,” he added. “With stocks responding to the same driving force, the gold-stock relationship tended to become somewhat more intertwined, making gold less attractive as a safe haven.”
Gold and Bitcoin both broke their previous highs in 2020. Gold hit its record high in July, topping $ 2,000 an ounce in August, according to TradingView.com. Bitcoin broke its record high in December and has doubled from there in the weeks that followed.
Proponents often argue that Bitcoin is like digital gold, but with properties that make it easier to store and transport. Industry leaders are also known to pit the two stores of value against each other.