---
title: "Gold and Its Challengers"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/222860679.md"
description: "Recently, Bitcoin has surged rapidly and reached a new historical high, while gold has turned to oscillation, showing a divergence in their trends. Although both have anti-inflation and quasi-currency properties, there are differences in their pricing logic. Geopolitical conflicts and the debt issues of developed countries may support the medium to long-term allocation value of gold, but if risk appetite improves next year, developed economies may shift their gold reserves to Bitcoin, which could put pressure on gold prices. Domestic stock market sentiment has retreated, and the 10-year government bond yield has fallen to 1.7%"
datetime: "2024-12-20T00:01:23.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/222860679.md)
  - [en](https://longbridge.com/en/news/222860679.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/222860679.md)
---

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# Gold and Its Challengers

**Core Viewpoint**

Recently, Bitcoin has rapidly risen and reached a historical high, while gold has turned into a fluctuation after hitting a new high, showing a certain degree of divergence in their trends. Although both have anti-inflation and quasi-currency properties, there are many differences in their pricing logic. Geopolitical conflicts and the debt issues of developed countries may continue to support the medium to long-term allocation value of gold. However, if risk appetite improves next year and major developed economies sell their gold reserves to buy Bitcoin, gold prices may come under pressure. In terms of asset allocation, the domestic market has entered a policy vacuum period, and trading sentiment in the stock market has slightly declined, with stocks and bonds returning to a negative correlation. However, the 10-year Treasury bond has fallen to 1.7%, making the odds less favorable. Overseas, the U.S. fundamentals remain strong, U.S. Treasury yields are rising, and the U.S. stock market is showing structural differentiation, with technology stocks leading again but short-term congestion being relatively high. The Federal Reserve is highly likely to cut interest rates by 25 basis points in December, and attention should be paid to the FOMC meeting this week regarding future interest rate cut paths.

**Core Theme: Gold and Its Challenger**

From the perspective of pricing logic, both gold and Bitcoin have quasi-currency properties, benefiting from long-term issues such as geopolitical conflicts and concerns about the sustainability of debt in developed countries. However, there are also differences in their pricing logic; Bitcoin's supply constraints appear to be stricter than those of gold. In terms of risk appetite, Bitcoin is generally considered a risk-on asset, while gold is a risk-off asset. Regarding currency properties, gold has a long history as a currency, while Bitcoin's currency attributes require more endorsement from government departments and time for validation. In terms of financial attributes, Bitcoin has a weaker correlation with U.S. Treasury yields compared to gold. Bitcoin features a return characteristic of "high yield + high risk + high Sharpe + low correlation." In terms of holding structure, emerging market countries continue to purchase gold, while developed countries have a higher acceptance of Bitcoin.

**Gold and Its Challenger**

**Recently, Bitcoin has rapidly risen and reached a historical high, while gold has turned into a fluctuation after hitting a new high, showing a certain degree of divergence in their trends. Bitcoin is referred to as "digital gold," and its total market capitalization has surpassed that of silver. Can it partially replace gold's position in the future? We attempt to analyze the differences between the two from the perspectives of supply constraints, asset properties, pricing logic, and holder structure.**

**From the perspective of pricing logic, both gold and Bitcoin have quasi-currency properties, benefiting from long-term issues such as geopolitical conflicts and concerns about the sustainability of debt in developed countries. However, there are also differences in their pricing logic, specifically:**

**First, in terms of supply constraints, both Bitcoin and gold are assets with a certain quantity limit, which also determines their strong anti-inflation properties.** In comparison, Bitcoin's supply constraints seem to be stricter. Currently, the circulating supply of Bitcoin is about 19.8 million coins, close to the 21 million coin limit. With the halving of mining rewards this year, the difficulty of Bitcoin mining has increased, and nearly 95% of Bitcoin has already been mined, leading to limited future supply increments. The supply of gold in 2023 is 4,950 tons, accounting for about 2.3% of the global stock of gold, with a low supply scale and growth rate. Compared to Bitcoin's rigid limit, gold's supply is more flexible 
**Second, from the perspective of risk preference, Bitcoin is actually a risk-on asset for most of the time, while gold is a risk-off asset.** In the face of geopolitical and other uncertain environments, gold's safe-haven properties are clearly superior to those of Bitcoin. The price trend of Bitcoin shows a negative correlation with the VIX index; when uncertainty rises and amplifies asset volatility, Bitcoin often faces downward pressure.

**Third, from the perspective of monetary attributes, gold has a long history as a currency, while Bitcoin's monetary attributes require more endorsement from government departments and verification over time.** Marx once said, "Money is inherently gold and silver," and as a new entity, Bitcoin's quasi-monetary attributes are filled with controversy and still need further consolidation. Regulatory attitudes will also have a significant impact on market sentiment regarding cryptocurrencies. When Trump was in office, he provided comprehensive support for cryptocurrencies; the biggest risk previously was the political risk brought about by national regulatory policies, which has now been largely eliminated in the United States. The long-term risk of Bitcoin lies in the technical aspect, such as quantum computing. As computing power strengthens in the future, it cannot be ruled out that one day the encryption algorithm of Bitcoin may be cracked.

**Fourth, from the perspective of financial attributes, there are differences in the sensitivity of gold and Bitcoin to U.S. Treasury yields and the U.S. dollar index, with Bitcoin showing a weaker correlation to U.S. Treasury yields than gold.** After considering the impact of central bank gold purchases, gold maintains a high and stable negative correlation with real U.S. Treasury yields. In contrast, the correlation between Bitcoin and U.S. Treasury yields is not significant, and there have even been prolonged periods of positive correlation, such as in 2016-2017, 2020-2021, and 2023, when both U.S. Treasury yields and Bitcoin rose simultaneously.

**Fifth, from the perspective of return-risk characteristics, Bitcoin possesses the "high return + high risk + high Sharpe + low correlation" characteristic (based solely on historical performance), which theoretically can improve portfolio performance.** As market acceptance of Bitcoin increases, its volatility center shows a decreasing trend, but it still remains significantly higher than that of gold, U.S. stocks, and other assets. In the past year, Bitcoin's volatility was 55%, far exceeding gold's 15%, the S&P 500's 12%, and U.S. Treasury's 5.8% From the perspective of risk-return ratio, Bitcoin's high risk corresponds to higher returns, with a growth rate of 143% in the past year. The Sharpe ratio is close to that of gold and U.S. stocks. From the perspective of asset correlation, Bitcoin has a low correlation with other assets, especially with U.S. Treasuries and the U.S. dollar, theoretically allowing for better risk diversification in a portfolio.

**Sixth, from the perspective of holder structure, under the trend of de-dollarization, a "golden circle" centered on emerging market countries may gradually form in the future, while developed markets like the U.S. have a higher acceptance of cryptocurrencies.** The combined effects of geopolitical conflict patterns and the sustainability of developed countries' debt highlight the currency-like attributes of gold and Bitcoin. Since Bitcoin has not yet been classified as an official reserve asset, market concentration is relatively low, and it is mainly held by the private sector, with most government-held Bitcoin being obtained through penalties and confiscations. According to Bitcointreasuries data, as of December 16, 2024, U.S. company Microstrategy holds approximately 424,000 Bitcoins, accounting for 2% of the total global Bitcoin supply, making it the largest Bitcoin holder among publicly traded companies, primarily benefiting from a strategic leverage acquisition of Bitcoin through issuing stocks and bonds. The U.S. government holds about 200,000 Bitcoins, and Trump has repeatedly proposed a "strategic Bitcoin reserve." If foreign central banks purchase Bitcoin in the future, it may have a significant impact on prices. In contrast, the gold market has a higher concentration, but the structure is differentiated, with emerging market countries represented by China and India having significant room for increasing the proportion of gold in their foreign exchange reserves. The trend of central banks in emerging market countries purchasing gold is likely to continue.

**In summary, although both gold and Bitcoin have strong anti-inflation and currency-like properties, there are significant differences in pricing logic, risk-return characteristics, holding structure, and supply constraints. The recent divergence in the prices of gold and Bitcoin is mainly influenced by a series of policy directions from Trump, including changes in geopolitical situations (geopolitical conflict risks → trade frictions), U.S. policy support for cryptocurrencies, stimulating "animal spirits," and raising risk appetite, among others.**

**Insights**

**1\. Federal Reserve Chairman Jerome Powell stated on November 5 that "Bitcoin's competitor is gold, not the U.S. dollar," indicating that there may be some competitive relationship between the two.**

**2\. Recently, the People's Bank of China resumed gold purchases, confirming the demand for gold, and gold prices have found support near current levels. In the medium to long term, with geopolitical conflicts and doubts about the sustainability of developed countries' debt, gold still has high allocation value. However, if major developed economies sell their gold reserves and turn to buy Bitcoin, gold prices may come under pressure.** **3\. Next year, the U.S. fundamentals are highly likely to avoid recession, and U.S. stocks are expected to perform strongly. Market risk appetite may remain at a high level, which could slightly suppress the performance of risk-off assets such as gold.**

Author of this article: Zhang Jiqiang, Tao Ye from Huatai Securities Fixed Income Research, original title: "Gold and Its Challengers"

Zhang Jiqiang S0570518110002 Researcher

Tao Ye S0570522040001 Researcher

Risk Warning and Disclaimer

The market has risks, and investment should be cautious. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk

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