New York (CNN Business) It looks like bitcoin and other cryptocurrencies may not be digital gold after all.
So far in 2022, bitcoin prices are down more than 15%. Other top cryptos, such as ethereum, solana, and Elon Musk’s doge coin, have also struggled this year. As of this moment, tactual gold is up more than 4% and back around $1,900 an ounce, flirting with record highs of more than $2,000.
During a time when interest rates are being aggressively raised by the Federal Reserve, savvy investors seem to understand that gold and other precious metals, like palladium and silver, are better hedges against inflation.
“It is now clear that bitcoin trades parallel to the risk assets, rather than [as] a safe haven,” Ipek Ozkardeskaya, an analyst with Swissquote, said in a report earlier this month. “Bitcoin is still not the digital gold, it’s more of a crypto-proxy for Nasdaq, apparently.”
Neither Musk’s acquisition of Twitter (TWTR) – which some analysts believe could lead to even greater cryptocurrency promotion on Twitter – nor the news that Fidelity will allow customers to hold bitcoin in their 401(k) retirement accounts, was enough to lift crypto prices out of their recent slump. Bitcoin is now trading below $40,000.
Gold still has a lot of advantages over digital assets, according to many experts. An economic slowdown caused by rampant inflation may further boost gold demand.
“Stagflation risks are rising and geopolitical tensions show few signs of a quick resolution,” said Louise Street, senior markets analyst with the World Gold Council, an industry research firm. “Gold is historically one of the strongest performers in a stagflationary environment, in which equities suffer and commodities often retreat.”
In a report earlier this month, Wells Fargo Investment Institute analysts said “gold can be physically held that is universally recognized and has had one quarter of the volatility” of bitcoin, stocks, and other assets.
Wells Fargo analysts predict gold could rise to $2,100 an ounce this year.
Inflation fears and rate hikes aren’t the only factors driving gold prices up. In a report released late last month, Mace McCain, chief investment officer at Frost Investment Advisors, said gold has also become a safe haven due to concerns about Russia’s invasion of Ukraine.
“As events in Ukraine escalated, we saw investors turn to gold,” he wrote, adding that bitcoin is still “finding its niche somewhere between a speculative tech asset and a digitized hard currency.
Similarly, the good old fashioned dollar is turning out to be a better investment than bitcoins and other cryptocurrencies during these volatile times. The US Dollar Index has gained about 6% this year.
Bitcoin still isn’t a substitute for gold or government-backed currencies during times of crisis for many investors.