Bitcoin (BTC) may be a form of “exponential gold” capable of outperforming the precious metal in times of high inflation, wrote Fidelity’s Global Macro Director Jurrien Timmer on Wednesday.
In a series of threads posted on X this week, Timmer outlined how Bitcoin’s risk-return ratio is in a “different universe” from traditional asset classes like gold, stocks, or treasury debt.
“In my view, Bitcoin is a commodity currency that aspires to be a store of value and a hedge against monetary debasement,” he wrote on Wednesday. “I think of it as exponential gold.”
While recognizing gold as “money,” the analyst said it is “too deflationary and clunky to be used as a medium of exchange.” Nevertheless, the precious metal has gained market share relative to GDP during periods of excessive money supply growth, such as in the 1970s and 2000s.
Bitcoin bullish hedge fund managers from Paul Tudor Jones to BlackRock’s Larry Fink have frequently likened Bitcoin to “digital gold” for its reliable scarcity in comparison to dollars or other forms of fiat currency.
When the Federal Reserve reduced interest rates in 2020, Bitcoin and gold surged to new all-time highs within months. Likewise, each experienced major retracements in 2022 as interest rates climbed, but both have recovered remarkably well since then.
What differentiates both assets is volatility, with Bitcoin showing roughly four times the volatility of gold “Bitcoin’s high vol gets a bad rap sometimes, but with those huge drawdowns also come large gains,” Timmer wrote.
“Yes, Bitcoin is down 54% from its two-year high, but it is also up 84% from its low,” he continued, adding that government bonds “can’t hold a candle to that risk-reward math.”
By comparison, Gold is now 1% down from its two-year high, and up 22% from its two-year low, now trading for $1978 per ounce.
What Does Bitcoin Trade With?
Despite comparable qualities and periods of parallel trading this year, Timmer noted that Bitcoin still remains completely uncorrelated to gold. Rather, it retains a significant (but shrinking) correlation to the S&P500, while appearing negatively correlated to the US Dollar, and US Treasuries.
Below, we see a ranking of Bitcoin’s correlation to the rest of the menu. It is negatively correlated to the US Dollar and T-Bills, but that’s about it. And surprisingly, it is uncorrelated against gold. /6 pic.twitter.com/Xj1AXSWT2e
— Jurrien Timmer (@TimmerFidelity) November 3, 2023
“it puts a question mark behind the thesis that Bitcoin is playing for the same team as gold,” he wrote on Friday. “If Bitcoin and gold play on the same team but in different games, then that’s not too bad.
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