Bitcoin and Gold Reach Record Highs Driven by Limited Supply, Says Strategist
Both bitcoin and gold prices are surging to new record highs, reaching above $72,000 and eyeing the $2200 level, respectively. The limited supply in both assets coupled with increasing uncertainty adds to their appeal. Ben Emmons, the New Edge Wealth Senior Portfolio Manager Head of Fixed Income and Macro, explained in an interview that the world is facing liquidity easing and uncertainty which is driving the demand for these two safe-haven assets. Furthermore, the impact of the Federal Reserveโs plan to cut bonds is predicted to bolster gold pricesโs rise. Meanwhile, bitcoin, which will have its next halving event in 2020, has seen increased demand from ETF, resulting in limited selling.
Impact of Treasury Yield and Inflation Print on Gold
Gold has an inverse relationship to treasury yield, and it is anticipated that as the price of gold reaches new highs, treasury yield will decrease. A decade later, during the pandemic, it happened again with the record highs in gold and lower treasury yields, driven by fat influence. The upcoming election also increases speculation, and if the treasury yield remains stagnant, high gold prices with low treasury yield may continue. In the short term, inflation print may add to the volatility since it may not break 3%, but higher energy prices and rising housing costs arenโt doing any good. Investors are waiting to determine if inflation will affect the overall economy and how the Federal Reserve will respond.
Bitcoinโs Rising Potential
Limited supply, coupled with ETF demand, drives bitcoinโs high price. The recent ETF has fueled bitcoinโs demand, with ETF managers having to buy actual coins instead of dealing with proxies. The Bakkt platform has experienced a limited selling of bitcoin with rate slowing down. Additionally, the impending halving event also slows the rate at which bitcoin is produced, adding to the assetโs appeal. As a result, experts anticipate that bitcoin will hit $100,000, but caution must be taken since its volatility can result in unimaginable losses.
Ethereumโs Rising Potential
Ethereumโs correlation with blockchain technology adds to its appeal. Unlike bitcoin, ethereum has unlimited supply due to its gas creation. Ethereumโs benchmark status in the blockchain also adds to its potential. The approval of an ETF for ethereum will attract more institutional and retail buyers, like in bitcoin.
Advice to Investors
Investors must exercise caution by paying attention to the long-term prospect and treating gold and bitcoin as diversification assets in a portfolio. Although they have been dubbed safe-haven assets in times of uncertainty, investing in these assets carries significant risk. Additionally, considering the correlation between these two assets with politics and the economy is crucial.
Hot Take
2020 has been an exceptional year for gold and bitcoin. Although both assets are highly volatile and carry risks, the rising uncertainty and limited supply are factors that drive their appeal. With the upcoming election and the new normal, predicting their future trends is next to impossible. Nonetheless, embracing caution and focusing on the long-term prospect of these two assets may avoid unimaginable losses and instead guarantee gradual gains.
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