Should I buy Bitcoin? Investors shouldn't be thinking of ditching gold – at least not now

Dubai: No – It’s not the time to get out of gold and chase the hot streak Bitcoin is on. Or the streak that was there until Monday (January 4) when it shed 17 per cent after hitting an all-time high of $34,792.47 on Sunday.

Sure, gold too did see a drop – by 0.14 per cent – after making solid gains in recent days, but still closed at a substantial $1,939.4 an ounce. It’s currently at $32,511.6

Just so, there is some perspective, Bitcoin was at $7,200 on January 1, 2020.

But don’t go by what happened in a single day with two of the most in-demand assets these days when it comes to deciding where to place your next investments.

For Roberto d’Ambrosio, CEO of Axiory Global, there is only one asset class to last the distance. “The safe haven characteristic of gold is still unparalleled,” he said.

“The reaction of Bitcoin [prices] is directly correlated with the performance of the stock market. The stock market rises to new highs? So does Bitcoin.

“The opposite is the truth for gold, and that is why an adequate part of the [investment] portfolio should be allocated towards this commodity.

“Bitcoin is far from taking the gold’s throne as store of value and safe heaven asset – Period.”

Constant bubble
“Bitcoin has its share of followers and has had an extraordinary run following an earlier boom-bust cycle,” said Sameer Lakhani, Managing Director at Global Capital Partners, who has dabbled in cryptos in the past but is now staying well away. “This is part of the “everything rally”.
“Bitcoin is in the midst of a speculative bubble once again with underlying fundamentals that appear to be either non-existent or undecipherable. The most prudent course would be to stay away and let the madness play itself out before sanity and gravity – inevitably – reassert.”

All in beholders’ eyes

But with Bitcoin, it’s easy to lose that sense of bearing, especially smaller investors who feel they are missing out on the biggest run up in an asset this side of stocks and gold. Through 2020, Bitcoin values have gone up by 300 per cent, and just in the final three months of the year, it was up 171 per cent.

Sure, stock markets too were cruising to new highs for a good part of last year, but in comparison to Bitcoin was just about par for the course. Same with gold, up 27.54 per cent in 2020.

With Bitcoin, “Unusual demand drove prices up in a short period of time in an environment which is still illiquid,” said d’Ambrosio. “There is still an unanswered question: even if we consider that just a small shift in demand can produce such an outcome, what created such a demand?

“My opinion is confidence induced by what I consider an insane, baseless run up in global stock markets, with particular reference to the one in the US.”

A store of eternal value… Gold’s back up past $1900 levels. Is there another rally in the works?
Image Credit: Agency

Primed for a stumble

This is why market watchers are warning that Bitcoin’s gone up way too high in too short a span. “Bitcoin volatility is here to stay – and that should scare away many investors,” said Edward Moya, Senior Market Analyst at Oanda. “The appeal of the recent rally was steady flows and healthy consolidations before massive price rallies.

“Bitcoin’s wild swings will likely spark interest into some of the other cryptocurrencies, such as Ethereum. Over the weekend, it seemed ambitious calls for Bitcoin to rally towards $50,000 became the consensus on Wall Street and that provided the last bit of exhaustion to this historic rise.”

Fritter the gains?

Will Bitcoin hold on to these plus $30,00 levels? According to d’Ambrosio, “From a technical analysis, the prices are definitely in the “overbought” area and on all short- to mid timeframes.

“If we look at the RSI (Relative Strength Index), a leading indicator signalling a possible price reverse after certain levels, a correction is more than expected. Since we are talking about a very volatile asset, the correction can easily be double-digit.

“Furthermore, Bitcoin has experienced a strong upward trend during last couple of months. And with a remarkable acceleration in the latest two weeks.

“These are usually clear signs that at least a short-term profit taking is about to knock to the door.”

That’s what investors who got in late for the Bitcoin rally should brace for. That’s the one thing cryptocurrencies can ensure each time – a wild ride.

Gold’s New Years resolution to return to record high territory got off to a great start. Gold appears to have got its groove back and should be eyeing the $2,000 level in the short-term

Edward Moya of Oanda

(This story has been published from Gulf News rss feed, without modifications to the text.)