(Mike Maharrey, Money Metals News Service) Bitcoin investors have enjoyed quite the windfall in the last month, with the price surging from $68,000 to over $99,000
Bitcoin is known for its rapid price gains, but it also has a history of quick and significant selloffs. How can you protect your gains during the next downturn?
One option is to convert your Bitcoin to gold or silver during the correction period. This will protect your gains from both the selloff and the relentless devaluation of the dollar.
Bitcoin Is Volatile
The price of Bitcoin has been generally upward over time, but it tends to be extremely volatile in the shorter term.
Since its inception in 2009, Bitcoin’s price has experienced dramatic swings. Starting at fractions of a cent, Bitcoin reached $1,000 in 2013, signaling its potential as a financial tool. However, this milestone was followed by a sharp correction. By 2017, Bitcoin had surged to nearly $20,000, attracting both institutional and retail investors. This was followed by a dip to $3,200 in 2018. In 2021, Bitcoin soared past $60,000, driven by macroeconomic factors like inflation and institutional adoption, only to dip again back into the 30s.
Here are some highlights and lowlights of Bitcoin’s price performance:
- 2009–2010: Started at $0.0008, reaching $0.30 by the end of the 2010s.
- 2013: Surpassed $1,000 for the first time.
- 2013: Fell from $1,000 to $200.
- 2017: Rallied to nearly $20,000
- 2018: Dropped from nearly $20,000 to $3,200.
- 2021: Rallied and peaked above $60,000.
- 2022: Crashed from around $60,000 to near $20,000.
- 2022: Stabilized between $15,000 and $30,000 amid global uncertainty.
- 2024: Set a new record of just over $99,000
Each peak and correction in Bitcoin’s chart tells a story of evolving market dynamics and shifting investor sentiment coupled with significant volatility.
Bitcoin’s one-year volatility is around 50 percent. That’s more than double gold’s volatility.
Gold’s overall volatility is relatively low, historically running slightly above stock market volatility. This is in line with most fiat currencies over time. But gold doesn’t tend to devalue the way dollars and other fiat currencies do, making the yellow metal a great option for preserving one’s Bitcoin gains during the inevitable downturns. Given the level of historical volatility, it is likely to go through more significant selloffs within its long-term upward trajectory.
While silver is more volatile than gold, it is fundamentally a monetary metal and tends to track with gold over time.
Gold and Bitcoin Aren’t the Same
People often call Bitcoin “digital gold” and categorize them as similar assets. While there are some similarities, there are significant differences between the two, and they shouldn’t be considered “the same.”
As already noted, Bitcoin is much more volatile than gold, but that’s not the only difference. Bitcoin tends to behave more like a risk asset and correlates more closely with tech stocks.
For instance, Bitcoin failed as a safe-haven hedge as the markets tanked in 2018, instead correlating more closely with other risk assets. The cryptocurrency’s performance was down on par with tech stocks, falling 55 percent in the fourth quarter along with the stock market.
Meanwhile, gold was up significantly in the same period.
As a Bloomberg report noted, “The average long-term correlation between Gold and Bitcoin has been close to zero, which makes both together additive to multi-asset portfolios.”
In arguing that cryptocurrency isn’t a replacement for gold, the World Gold Council noted several gold fundamentals that differ from the Bitcoin market.
Gold
- is less volatile
- has a more liquid market
- trades in an established regulatory framework
- has a well-understood role in an investment portfolio
- has little overlap with cryptocurrencies on many sources of demand and supply
- is a safe-haven investment.
Gold as a Bitcoin Hedge
Bitcoin investors know the anxiety caused by protracted selloffs. One way to mitigate this is to sell Bitcoin as it goes into a bearish period and then buy again at the bottom.
But holding your profits in dollars exposes them to relentless inflationary pressure. To avoid this, savvy investors can use Bitcoin to buy gold (and silver as well). Holding precious metals through a Bitcoin bear market will preserve profits and possibly chart additional gains. When the market begins to recover, the investor can sell the precious metals and re-enter the Bitcoin market.
Money Metals was one of the first bullion dealers to accept Bitcoin as payment back in 2013. Since then, the company has expanded its services, facilitating both buying and selling transactions in cryptocurrencies using BitPay.
Money Metals Exchange can even make payments to clients using a variety of cryptocurrencies. We can purchase your metals and send you the digital coin of your choice as payment. This transaction can be done directly on our MoneyMetals.com website or over the phone.
Money Metals’ customers can also swap Bitcoin (and other crypto coins) for gold and silver to be stored by the Money Metals Depository. Storing with us makes it quicker to move back into cryptocurrency when the time comes and avoid the costs and hassle associated with shipping metals.
Mike Maharrey is a journalist and market analyst for MoneyMetals.com with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.
