We're seeing higher inflation and normally, we would expect gold $GOLD $GLD prices to go up but this is not happening this year. Bitcoin $BTC prices are increasing instead. According to JPMorgan Chase $JPM , more clients are asking for Bitcoin as a hedge against inflation. Is Bitcoin the new gold?
Why Gold is considered a hedge against inflation? Even though gold is not a value-producing asset without any intrinsic value, it has a psychological value that for thousands of years, you can buy more or less the same thing with the same amount of gold, hence, making it the best inflation hedge.
Normally, gold is negatively correlated with the Real 10-Year US Treasury Yield $TLT . With negative real yields, we should have expected gold prices to increase but this is not happening. It seems money is flowing into Bitcoin instead.
Bitcoin is too volatile and currently deflationary to be a currency and replace the US Dollar but can it replace gold?
Bitcoin is already replacing gold. But probably this is only for the short-term. Bitcoin has fundamental problems that gold doesn't have. For instance, its dependence on miners. The Bitcoin Blockchain can only work as long as miners are profitable. Ultimately, it all comes to trust. You can always save your gold with a custodian bank, where there is a whole system that makes sure everything is secure. But what about the Bitcoin Blockchain? We all know how easy it was for the FBI to transfer back the Bitcoin from the Colonial Pipeline ransom. Besides, you lose your Bitcoin wallet, you lose everything. If there's no security, then how can it be a long-term hedge?