par Business AM
published on Wednesday October 9, 2024 has 06:49 •
3 min read
Key information
- Gold and bitcoin have reacted differently to recent geopolitical tensions.
- The behavior of bitcoin is more like that of a risk asset like technology stocks than that of a safe haven like gold.
- The high correlation between bitcoin and the Nasdaq 100 index poses a problem due to the current bubble in technology stocks.
Gold and bitcoin reacted differently during recent geopolitical tensions involving Iran and Israel. While the price of gold has risen, that of bitcoin has fallen, fueling discussions about their role in investors’ portfolios. The high correlation between bitcoin and risky assets, such as technology stocks, may indicate broader market behavior rather than a safe-haven function. This raises questions about the stability and long-term potential of bitcoin compared to gold’s traditional role as a store of value.
The strong correlation between bitcoin and the Nasdaq 100 index, with a coefficient of 0.88 over the last five years, confirms this observation. As many have noted, bitcoin essentially acts like a Nasdaq ETF. This close relationship poses a problem because U.S. tech stocks are currently in a bubble fueled by excessive stimulus from the Federal Reserve.
Investment Implications
Indicators such as the high price-to-sales ratio and the inflated weighting of technology stocks within the S&P 500 attest to this overvaluation, reminiscent of the peak of the dotcom bubble before its collapse. The bursting of this technological bubble could have a significant impact on bitcoin due to the intertwining of their destinies.
Risk Considerations
Although bitcoin could see dramatic price increases, reaching 91,000. euros or more, it lacks the stability and historical track record of gold as a reliable store of value. Gold has historically served as a safe haven in times of crisis, while bitcoin’s performance suggests it is better suited to periods of economic prosperity.
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