Bitcoin and gold are the two assets, which hit all-time records. And, apparently, they are going to move beyond this benchmark. Why did these assets sky-rocket and what are experts predicting?
Bitcoin reached a new all-time record on March 11, having gone over 72k USD per coin. As for gold, it set a new all-time record on Friday, March 8. Just in the previous month a troy ounce was worth 2,000 USD and its price today is 2,150 USD. Overall, gold has gained 7 per cent in price during a week.
At the same time, Bitcoin, surely, has blown up the market with sky-rocketing growth: its price increased by 59 per cent during the month, hitting 170 per cent growth in half a year and a 225 per cent markup annually. As risky assets, with such ups and downs, cryptocurrencies stand out against the traditional gold, for which a 7 per cent increase for a week is quite a lot.
‘At the same time, Bitcoin is not really a leader in per cent rise in the recent month. Some coins showed an increase from 240 to 400 per cent during the month. However, these coins have a far lower capitalisation than Bitcoin’s turnaround. And its hitting all-time high gives it an additional investment leverage’, says Nikolay Pereslavsky, Head of Support Practice, CMS Group.
Ethereum gained 75 per cent beating the psychologically-crucial 4k USD threshold. Yet, it is still lower than the 4,866 USD peak of November 2021. Minor tokens such as Ether, Solana and Avalanche have also grown. But Bitcoin, of course, is in the lead.
What caused this increase of rates in the recent months? ‘We have seen Bitcoin grow for seven months in a row, or from September 2023. The most bullish trend was observed during the conflict in Gaza Strip. At the start of the conflict the Bitcoin price grew by almost 30 per cent. Instability in the Red Sea region and considerably high inflation in developed countries could also enhance the attractiveness of the crypt as a protection asset’, notes Nikolay Dudchenko, an FG Finam analyst.
This year, Bitcoin is growing thanks to the legalisation of the cryptocurrency market in the US and Great Britain. The Americans pioneered the approval of spot Bitcoin exchange-traded funds (spot ETFs) and this week the Brits have allowed stock exchanges to offer crypto ETPs lifting its 2022 ban. Pereslavsky reminds that after the launch of gold-backed ETFs in early 2005, the asset gained 300 per cent from 2011 price reaching 1,800 USD per ounce.
Another factor supporting Bitcoin prices is halving, which is planned for April. This is a planned reduction of new bitcoins creation rate. ‘Previous three halvings fuelled Bitcoin’s growth. There are all indications to believe this halving will give the coin another boost’, says Pereslavsky. It can be that Bitcoin halving has already impacted the prices.
Oleg Kalmanovich, Chief Analyst, Neomarkets, predicts that Bitcoin’s exchange rate will further increase in the context of this great momentum, and the growth might continue until autumn. ‘Yes, ups and downs are possible: this is both an advantage and disadvantage of this coin, however, the market boiling is inevitably connected with market correction.
‘But in general, we expect gradual growth up to 85k USD and more within half a year reaching 90–95k USD’, says the analyst. He explains that the US FRS policy, in particular, will support the Bitcoin strengthening: another interest rate increase cycle has ended, further, the market expects the loosening of the monetary policy.
The same factor will support further gold price increase. Experts predict it can optimistically reach 3k USD per troy ounce, which is 40 per cent growth.
Bitfinex believes the Bitcoin is increasingly perceived as a hedging instrument. In fact, it is becoming more of ‘a competitor’ of gold, the more traditional protection instrument.
‘As per our estimates, over the past two years, the correlation between the Bitcoin and the price of gold has grown significantly averaging 77 per cent. With this, it is possible that the perception of cryptocurrency as a ‘protection instrument’ is, to some extent, growing indeed’, says Dudchenko.
According to him, the precious metal market is also confirming the expectations of a close U-turn of the US FRS monetary policy.‘The Fed is expected to start cutting rates as early as in summer, and by the end of this year we will see three or four FRS rate cuts by 25 basis points, which is close to the Fed’s own projections. When the Fed cuts rates, the dollar starts to weaken, and gold, denominated in dollars, usually increases in price’, says Dudchenko.
This is confirmed technically. ‘Gold is used as a traditional way of saving and preserving funds, especially during instability. And over the past two months, the number of geopolitical tensions in the world has increased. This year, there is still demand for gold from central banks, and there is also interest from individuals and investment funds’, Dudchenko concludes.
‘Certainly, Bitcoin’s growth will not be linear and continuous, there will be significant corrections, however, these two assets do have positive mid-term and long-term prospects, I believe’, adds Nikolay Pereslavsky.