Bitcoin Recovers After $7 Trillion Plunge
Gold soared to almost $5,600 an ounce in late January before experiencing a dramatic decline. The precious metal experienced a significant decline of approximately 20% in the subsequent week, while silver plummeted by as much as 35% from its peak, leading MarketWatch to describe it as a $7 trillion wipeout. Bitcoin experienced a decline, falling to approximately $61,000 by early February. However, just six weeks later, bitcoin has surged back above $72,000. Gold remains trapped beneath its peak. The recent crash in gold prices has been significant, while bitcoin has shown a quicker recovery over the past 30 days, sparking renewed discussions around the concept of digital gold. Rick Rieder stated in 2020 that bitcoin is “so much more functional than passing a bar of gold around” and would take gold’s place “to a large extent.” His perspective is receiving renewed attention. President Trump’s nomination of Kevin Warsh as Federal Reserve chair sent shockwaves through gold markets in late January. Warsh is perceived as aggressive regarding inflation and doubtful of the expansionary monetary policy that has driven gold’s surge. The message was unmistakable: reduced money printing, a more robust dollar, and diminished incentive to maintain a hedge against debasement.
CME Group had been raising silver margins since late January amid a price surge, and on January 30, they revealed yet another increase from 11% to 15%, set to take effect the following week. The cumulative margin pressure has led to the liquidation of leveraged positions. Silver, previously trading above $120, plummeted to an intraday low of $75. On the same day, China suspended trading in five commodity funds. Bitcoin experienced a decline in tandem with gold and silver, dropping from approximately $70,000 to about $61,000 by February 5. Then it experienced a rebound. As of March 13, it reached $72,394, marking a 19% increase from its previous low. Gold continued its downward trajectory following the initial crash, reaching a low of approximately $4,400 in early February. By mid-March, it managed to climb back to $5,114, marking a 16% recovery, yet still remaining 9% below its January peak.
The widening gap has reignited discussions surrounding the digital gold narrative. Bitcoin experienced a downturn, but it quickly rebounded, whereas gold remained stagnant. In the latest developments, U.S. spot bitcoin ETFs continued to attract significant investments, contrasting sharply with gold ETFs, which experienced capital outflows throughout February. BlackRock’s IBIT, the biggest bitcoin ETF at over $55 billion in assets, barely skipped a beat. Bitcoin’s supply schedule provides a fundamental advantage in the scarcity debate. The April 2024 halving has reduced the daily production of new bitcoins to approximately 450 coins. The total supply is limited to 21 million, and there are currently less than one million coins remaining to be mined. Gold, in contrast, features an elastic supply: as prices surge, mines ramp up production. The supply dynamic is central to the ongoing debate between bitcoin and gold. Gold has withstood the test of time, enduring thousands of years of competition. Bitcoin has been around for 17 years.
However, the issuance rate of bitcoin is set by mathematical principles, and it remains beyond the influence of any CEO or central bank. Gold bulls are holding their ground. The metal continues to show resilience, maintaining an impressive nearly 70% increase over the past year, despite the recent downturn in gold prices. The January selloff, they contend, was a technical correction exacerbated by margin calls, rather than a fundamental shift away from precious metals. Bitcoin continues to show a strong correlation with risk assets such as the Nasdaq, complicating the narrative of it being a “safe haven” when equity markets are in decline. Kevin Warsh stands out as the unpredictable element. If Trump’s nominee secures confirmation as Fed chair following Jerome Powell’s term, he will take the reins of the money printer. Tightening conditions lead to declines in both gold and bitcoin. Arthur Hayes anticipates that cutting rates will be necessary to manage the national debt, leading to both assets surging higher. No one is proclaiming a victor in the battle between bitcoin and gold. However, the scoreboard from this recent crash shows a preference for bitcoin. The market dipped, only to rebound with remarkable speed. Gold has not.
