This week, the United States Senate introduced another stimulus package that would add more than $1 trillion to the Fed’s already ballooning balance sheet. In response, gold reached a new all-time high, and Bitcoin soared to $11,000.
It has created what one analyst calls a “perfect” macro-economic environment for hard, scarce assets like cryptocurrency and precious metals to grow. They also claim that this “picture” perfect scenario could last through the rest of the year.
Hedge Funds Are Cleaning Up On The Recent Gold Rush
The precious metals market is molten hot. Gold just set a new record, and silver has been surging. Even gold-related stocks have been on a tear, as the broader industry benefits from the burgeoning demand.
The demand is in response to investors seeking a safe haven asset and hedge against the inflation that is expected as a result of the current monetary policy.
Chief currency analyst at broker HYCM Giles Coghlan says the “case for gold upside is literally perfect at the moment,” due to “quantitative easing,” the “low-interest-rate environment,” and “equities giving a poor return.”
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Several precious-metal-based hedge funds have had exceptional performance over the last quarter, earnings reports reveal. Chicago-based metals and cryptocurrency hedge fund Typhon Capital Management saw an increase of between 6 and 7%.
Delbrook Capital’s Delbrook Resource Opportunities Master Fund is up nearly 20% month over month for three months running a row. The fund’s founder, Matt Zabloski, says that precious metals are likely to continue to climb through the end of 2020 “thanks to the continued uncertainty of the macro picture and the US election.”
BTCUSD Versus XAUUSD Correlation Comparison | Source: TradingView
Macro-Economic Uncertainty Could Keep Bitcoin And Metals Trending
The same reasons behind the recent gold rush have also begun to drive investors toward Bitcoin and other cryptocurrencies.
Bitcoin is often called digital gold and shares several attributes with the precious metal. Among the most valuable similarities with gold is the asset’s hard-coded digital scarcity. Only 21 million BTC will ever exist, and while gold’s supply is finite, there’s no telling for certain how much is left to be unearthed.
The gold market cap is over $11 trillion, according to a new report on Bitcoin from Fidelity Investments. The cryptocurrency’s current market cap represents just over a 1% share of gold’s massive capitalization.
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Investors are only recently becoming wise to Bitcoin’s potential as a store of wealth and safe haven, similar to what the precious metal offers. If Bitcoin could absorb even just 10% of the current gold market cap, it would result in a price per BTC of $50,000.
The same $1.1 trillion more in XAU, would only result in roughly a $200 increase, while Bitcoin would grow by $40,000 per coin.
The more investors realize that Bitcoin is the fastest racehorse in the race against inflation, the more likely the cryptocurrency will outperform the precious metal from here on out.
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