Jerome Powell (Fed): Bitcoin is like gold

The interview lasted about half an hour and covered various topics, but Ross Sorkin focused on the crypto world at least a couple of times. 

To a specific question about Bitcoin, Powell responded by saying that people do not use BTC as a means of payment, but as a speculative asset. 

Then he added there is Bitcoin is like gold, only it is virtual and digital.

What he meant to say is that in the financial markets Bitcoin is used as an alternative to gold, and not as an alternative to the dollar, also specifying that Bitcoin is not an alternative to the dollar even as a means of payment. 

In fact, Ross Sorkin’s question was precisely about the decline in confidence in the dollar, and about Bitcoin as a possible alternative. 

Bitcoin and gold

Obviously, Bitcoin is very different from physical gold, both because it has no physical dimension and especially because gold is primarily a true commodity that is produced and purchased as such on physical markets, while Bitcoin is an exclusively financial asset. 

However, even the gold present in the financial markets is actually a purely financial asset, because it exists mainly in the form of derivatives, such as ETFs. Since January of this year, there are also 100% BTC-collateralized ETFs on the US exchanges, and these from a financial point of view can be compared with gold-collateralized ETFs. 

Therefore, in the retail physical markets, Bitcoin has nothing to do with gold, so much so that it simply does not exist as a commodity, and to be honest, it is not even widely used as a means of payment. 

On the financial markets, however, where gold is not present in physical form but in the form of financial derivatives, the similarities are there. 

The differences

Besides these, however, there is at least one other very important difference at the financial level. 

Gold is indeed considered the quintessential risk-off financial asset, so much so that ever since it has been present in the financial markets, it has never lost much value. 

The first gold ETF arrived on the stock exchange in 2003. At that time, the price of gold was about $400 per ounce, and since then it has never fallen below that threshold. 

Indeed, with the arrival of ETFs, it rose to over $1,900 in 2011, only to retrace in 2015 to around $1,000. 

As can be inferred, they are very slow price movements, and above all with very limited risks, if one avoids buying it when it is close to the highs. 

Furthermore, starting from 2019, it began to rise again, reaching $2,000 during the 2020 crisis, and even surpassing $2,100 starting from March of this year. The all-time high record was reached in October at almost $2,800, while now it seems to have stabilized around $2,600. 

The volatility of Bitcoin

Bitcoin, on the other hand, has a much higher volatility. 

In fact, Bitcoin should be considered in all respects a risk-on asset, unlike gold, even if until now in the long term the trend is still growing, 15 years after its birth. 

Bitcoin debuted on the financial markets in 2010, and its price exceeded $1 already in the following year. 

The 10$ were surpassed the following year (2012), and in 2013 there was the first major speculative bubble that took it first above 100$ and then also above 1,000$.

That bubble, however, was followed by the worst bear-market ever for the price of Bitcoin, which returned to $170 at the beginning of 2015.

In 2017, however, another speculative bubble inflated, which first brought it back above $1,000 and then allowed it to break through the $10,000 barrier and even push to almost $20,000. 

Obviously, that bubble also burst, and during the bear-market of 2018, it fell to below $3,500. 

The last great speculative bubble was that of 2021, which closed near $70,000, with a subsequent burst and return below $16,000 in 2022. 

Generally, in the year of the US presidential elections, the halving of Bitcoin occurs, which halves the rate of creation of new BTC, and after the elections, a speculative bubble inflates. It seems to be exactly what is happening even at this moment, and in the past, such a bubble has inflated for about 12 months, only to give rise, upon bursting, to a bear-market of more or less the same duration. 

It should be noted, however, that despite this high volatility, the lows of the subsequent bear markets have always been increasing, and by a lot. 

The effect of Powell on Bitcoin

This time it really seems that Powell’s words have had a positive effect on Bitcoin. 

It must be said, however, that last night another positive news came out for BTC, even though to be honest these two pieces of news only managed to bring the price back above those $99,000 that had been reached a couple of weeks ago.

In the following hours, however, the price skyrocketed well beyond $100,000, marking new all-time highs. 

The spike that led to breaking through the 100,000$ barrier with momentum occurred after the US stock exchanges had closed, and shortly after the reopening of the Chinese stock exchanges. 

It is therefore likely that the two positive news items from yesterday, both coming from the USA, have only triggered the rise to $99,000 in the American markets, while the rest was done by the Asian markets. 

However, that today, Thursday, December 5, 2024, there was the possibility of a turning point for the trend of Bitcoin’s price was in the air, so much so that some analysts had widely predicted it.