Advocates of bitcoin have long claimed that the cryptocurrency has much in common with gold. They envision a world in which traders flock to it in times of stress and use it to store value over time.
Now, Russia's war in Ukraine, which has roiled markets, is testing that argument in real time. The problem? Supporters and skeptics alike say it proves their point.
What's happening: The price of gold has surged almost 5% since the invasion of Ukraine two weeks ago. Before long, it could surpass the all-time high of $2,072 per troy ounce it reached in August 2020.
Bitcoin is trading about 4% higher. It rallied on Wednesday after President Joe Biden signed an executive order instructing the US government to examine the risks and benefits of creating a digital dollar.
Still, it's notching far larger swings than gold, and remains more than 40% below the record it notched this past November.
Cryptocurrencies have held up better than stocks since the war started. In the past, their trading was more closely correlated.
That's because aggressive sanctions cutting Russia off from access to the global financial system have increased bets that some countries and institutions will start to look more seriously at alternate ways to move money around the globe. Crypto networks stand to benefit.
"The reason that it has somewhat retained [its value] is the market viewing it as an alternative to traditional finance," Lux Thiagarajah, head of trading at BCB Group, told me.
The number of trades exchanging Russian rubles for bitcoin has spiked since the invasion, according to data from Arcane Crypto. Though it's still just a small portion of global transactions, it supports a broader narrative that cryptocurrencies have real value.
"We can definitely see that some Russians are using bitcoin as a hedge and to protect their savings," Marcus Sotiriou, an analyst at GlobalBlock, told me. This bolsters "the idea that bitcoin can act as digital gold," he added.
But Thiagarajah of BCB Group takes the opposite view. He emphasized that Russians turning to bitcoin is very different from investors viewing it as a safe bet. Its price remains extremely volatile, which doesn't inspire confidence among institutions that want to hold onto wealth.
"We don't view bitcoin as digital gold," he said. "Gold is by definition a safe haven."
Step back: Analysts at JPMorgan have calculated that if investors do start to treat bitcoin like gold, its value could rise to $150,000, roughly four times its current level. Yet the war in Ukraine doesn't appear to be a watershed moment, as debate continues.
SOURCE: CNN
IMAGE SOURCE: Pixabay
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