Recently, digital gold bonds and sovereign gold bonds have been the preferred modes of choice for many investors, as these options take the hassle out of buying and storing gold. While the storage and accrual of the value of gold has been digitized, another highly convertible asset that has shown better performance than gold is Bitcoin (BTC).
Described as digital gold, BTC has many similar characteristics to gold, namely global availability, high demand, and low supply. The supply and emissions of BTC in the market cannot be changed because it is algorithmically programmed. The same factor helps drive the price of BTC over time. Total BTC emissions in circulation decrease over time as emissions halve every four years.
Traditionally, on birthdays and other auspicious occasions, the culture of gifts and other hard assets has been around for a long time. However, as times change, new avenues should also be explored.
For a competitive quantitative analysis, if you had bought INR 50,000 worth of gold for each year starting in 2017 on Diwali, your current portfolio value on an INR 2,50,000 investment would be INR 2,79,150. If you had bought BTC with the same, the return would be INR 5,29,250.
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Gold VS BTC performance in the last 5 years (if purchased via Diwali) – Data Points / Charts:
a) The data points and charts below show the profit or loss (%) and present value of buying bitcoin or gold on Diwali for the corresponding year and holding the position to the present. Suppose someone bought bitcoin or gold on October 19, 2017 (Diwali day 2017) and sold or squared the position today at the current price.
Whereas the return on investment in gold over five years would have been 11%, the same for BTC is 111.7%. BTC returns may sound attractive, but the broader crypto landscape offers us many opportunities for higher alpha mining. If you take positions in BTC along with a bunch of promising quality altcoins, a similar trend can be seen in the same.
For example, you invest about $600, or about 50,000 rupees, across six high-quality altcoins from the previous 5 Diwali. Same with a combination of BTC that would have yielded a return of 659.624%, and a pure altcoin game would have yielded a return of 1207%. The altcoins used here in the strategy are ETH, BNB, LTC, XRP, ADA, and LINK.
Thus, BTC, being a vital asset with a history of more than a decade, has also inspired a lot of other decentralized projects and protocols, which offer huge upside potential if appropriate strategic positions are taken and risks are managed.
b) The charts and data points below show the profit or loss (%) of buying bitcoin or gold on Diwali for the previous year and holding positions on Diwali for the following year. Suppose someone bought bitcoin or gold on October 19, 2017 (Diwali day 2017) and sold/sold squares of the position on November 6, 2018 (Diwali day 2018).
The current state of the bitcoin-gold correlation
Until the market reaches the peak of the tightening, pressure on gold and other semi-investment metals such as silver and platinum is likely to continue. As investors are drawn to a strong dollar despite rising interest rates, the correlation between bitcoin and gold has reached its highest levels in the past 12 months.
Although Bitcoin is seen as a “digital gold” and an inflation hedge, investors don’t agree as much as the yellow metal. With inflation rising over the past several months, the value of bitcoin and gold has dropped dramatically. This resulted in a correlation at the highest level of the year at +0.4. A strong dollar and higher bond yields may lure investors away from the precious metal and Bitcoin.
(Author Palash Udhwani, is an investment analyst at Kunji.io. He writes regularly about fundamental expectations and macroeconomic factors affecting the crypto market. You can find more research by him at kunjiresearch.com.)
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