Over the weekend, the value of Paxos’ digital currency backed by gold reached a new peak. This surge came against the backdrop of increasing geopolitical tensions in the Middle East, causing some people to wonder if gold-backed assets like this one might be a better safe-haven investment than Bitcoin.
On April 13, the price of the PAXG gold-backed crypto token reached a high of $2,855. At the same time, Bitcoin (BTC) experienced a significant drop, falling from over $67,500 to around $62,700 in just a few hours. This represented a daily loss of approximately 7.5%, as indicated by data from CoinGecko.
“According to Bob Elliott, the head of Unlimited Funds and a former executive at Bridgewater, Bitcoin has various qualities, but it does not serve as a shield against geopolitical risks,” is one way to paraphrase the original statement.
Over the weekend, geopolitical conflicts in the Middle East intensified as Iran carried out a strike using drones and missiles against Israeli facilities.
The ex-research chief of Bridgewater Associates remarked that this past weekend provided further evidence, as Bitcoin and PAX Gold exhibited an almost perfect inverse relationship in their price movements over the previous day.
“If anything, it’s becoming an even worse hedge over time,” he exclaimed.
The PAXG token lost steam and returned to its prior gold-backed value of approximately $2,376 as of now.
Since early March, the value of the asset has been advancing gradually, gaining 20% as gold prices climbed up to $2,400 an ounce last week.
On the other hand, it was pointed out that Paxos token’s liquidity is quite low, with only around $36 million worth of trades happening every day, while well-established cryptocurrencies transact in the billions.
A Glassnode on-chain expert named “Checkmatey” pointed out that individuals making fun of Bitcoin by discussing the higher price of a less liquid gold token are not to be taken seriously in financial discussions.
During the same timeframe, Elliot noticed that Bitcoin’s market behavior resembled its past performance when it declined after the October 7 Hamas assault on Israel, whereas gold experienced price increases.
“The correlations are becoming increasingly weak and negative as time goes on,” Elliott remarked, attributing it to the Russian occupation of Ukraine in February 2022.
During February and March of that year, gold prices experienced a significant increase of 12%, while Bitcoin’s price fluctuated widely but remained mostly within a narrow range just before and after the invasion.
During the Russia-Ukraine conflict, Bitcoin’s price behavior was discussed by analyst Willy Woo. He noted that the cryptocurrency usually recovers within a short timeframe after such events.
In his analysis, Elliott determined that from a geopolitical standpoint, Bitcoin should not be considered a valuable asset for storing wealth, and its role might be more akin to various financial assets as a whole.
“Along the geopolitical dimension, its pretty conclusive BTC is not ‘digital gold.’”
As I pen this down, Bitcoin was in the process of bouncing back from the price drop over the weekend, reaching over $65,800 during early trading on April 15, Monday.
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2024-04-15 08:54