Original author: Lisa, LD Capital

BTC is known as digital gold, and traders often use the Nasdaq Index as an important reference for BTC price changes. Gold and the Nasdaq Index are typical representatives of safe-haven assets and risky assets respectively. This seems contradictory. . This article will uncover whether BTC is a safe-haven asset by exploring the factors that influence the price of BTC and gold.

1. Overview of Gold and BTC

1. Gold

• unit of measurement for gold

Ounce is the internationally accepted unit of measurement for gold, 1 troy ounce = 1.0971428 normal ounces = 31.1034768 grams.

• gold fineness

Fineness refers to the purity of metal, generally expressed in thousandths, and can also be expressed as K or K. The color/purity of gold is classified into 24 karat or K levels. The gold content of each karat (abbreviation of English carat and German karat, often written as k) is 4.166%. The gold content of each karat is:

8 k= 8* 4.166% = 33.328% ( 333 ‰) 9 k= 9* 4.166% = 37.494% ( 375 ‰)

10 k= 10* 4.166% = 41.660% ( 417 ‰) 12 k= 12* 4.166% = 49.992% ( 500 ‰)

14 k= 14* 4.166% = 58.324% ( 583 ‰) 18 k= 18* 4.166% = 74.998% ( 750 ‰)

20 k= 20* 4.166% = 83.320% ( 833 ‰) 21 k= 21* 4.166% = 87.486% ( 875 ‰)

22 k= 22* 4.166% = 91.652% ( 916 ‰) 24 k= 24* 4.166% = 99.984% ( 999 ‰)

For example, the standard delivery object of London gold is 400 ounce gold ingots with a gold content of no less than 99.50%; Shanghai gold has delivery varieties such as Au 99.99, Au 99.95, Au 99.5, Au 50 g, Au 100 g:

Au 99.99 is a gold ingot with a standard weight of 1 kilogram and a fineness of not less than 99.99%.

Au 99.95 is a gold ingot with a standard weight of 3 kg and a fineness of not less than 99.95%.

Au 99.5 is a gold ingot with a standard weight of 12.5 kg and a fineness of not less than 99.50%.

Au 50 g is a gold bar with a standard weight of 0.05 kg and a fineness of not less than 99.99%.

Au 100 g is a gold bar with a standard weight of 0.1 kg and a fineness of not less than 99.99%.

• Total market value of gold

An estimated 209, 000 tonnes of gold, worth approximately $12 trillion, has been mined, with approximately two-thirds of it mined after 1950, according to World Gold Council estimates. If all the existing gold were stacked together, it would form a solid gold cube with sides up to 22 meters (or 73 feet) long.

Gold in the form of gold jewelry accounts for approximately 46% of the total (approximately 95,547 tons, approximately US$6 trillion);

Central banks hold 17% of gold (approximately 35,715 tons, approximately $2 trillion) as reserves;

Gold in the form of bars and coins accounts for approximately 21% of the total (approximately 43, 044 tons, approximately $3 trillion);

Physically backed gold ETF funds account for about 2% of the total (about 3,473 tons, or about $0.2 trillion);

The remainder is used for various industrial purposes or held by other financial institutions, accounting for approximately 15% of the total (approximately 31,096 tons, or approximately US$2 trillion).

• gold trading volume

Gold is one of the most liquid assets in the world, with average daily trading volume in 2022 of $131.6 billion. The main trading venues include the London OTC market, the US futures market and the Chinese market. The London OTC market began in 1919. It is a gold spot OTC market and is the center of gold trading. The London bullion market association (LBMA) generates gold reference prices twice a day (10:30 a.m. and 10:30 p.m. London time). 3:00) as the benchmark for market participants to trade; the gold market of the New York Mercantile Exchange (COMEX) is currently the largest gold futures market in the world; the Shanghai Gold Exchange (SGE) on October 30, 2002 Officially opened on the same day, it provides a spot trading platform for the Chinese gold market; Shanghai Futures Exchange (SHFE) futures trading complements the spot trading of the Shanghai Gold Exchange.

Average daily trading volume of gold (in billions of dollars)

2、BTC

The 24-hour trading volume of BTC is approximately US$24 billion, of which the main trading volume occurs in perpetual contracts. The average daily trading volume of BTC has increased significantly recently, and the 24-hour trading volume is approximately 15% of gold (before this round of market conditions, it was probably less than 10% level), the largest trading venue for spot and perpetual contracts is on Binance.

The current total market value of BTC is US$677.7 billion, which is approximately 5.6% of the total market value of gold.

2. Factors affecting the price of gold and BTC

1. Supply and demand relationship

• gold

supply of gold

The annual new supply of global gold is relatively stable, maintaining around 4,800 tons from 2016 to 2022. Since gold is not easily lost, gold in the consumer sector still exists in some form and can be recycled and supplied again. Therefore, gold supply comes from two parts: mining production and gold recycling. The total amount of gold recycling in 2022 will be 1,140.6 tons, and the total mine production will be 3,626.6 tons. About three-quarters of the supply comes from the mining of gold mines, and a quarter of the supply comes from gold recycling. It can be seen from the chart below that the supply of gold is stable and there has been no major trend fluctuations for many years. Therefore, the relatively rigid supply of gold has little impact on prices.

gold demand

The total global gold demand in 2022 will be 4,712.5 tons. In the first half of 2023, the total global gold demand will reach 2,460 tons, a year-on-year increase of 5%. The demand for gold includes consumer fields such as gold jewelry, medical technology, investment demand, and central bank reserves of various countries. In 2022, the gold demand from jewelry manufacturing, technology, investment and the central bank will be 2195.4 tons, 308.7 tons, 1126.8 tons and 1081.6 tons respectively. The largest proportion is jewelry manufacturing reaching 47%, and the central banks demand accounting for 23%. Influenced by traditional culture, China and India are the worlds largest consumers of gold jewelry. In 2022, China and India will each account for 23% of global gold jewelry demand.

Gold is an important component of global central bank reserves. The proportion of gold in central bank reserves varies greatly among countries or regions. For example, the United States and Germany account for close to 70%, while mainland China accounts for only 3.8% and Japan accounts for 4.2%. After the outbreak of the Russia-Ukraine conflict, the United States and Europe froze the Russian central banks U.S. dollar foreign exchange reserves, causing non-U.S. economies to shake the security of the U.S. dollar. The demand for diversified foreign exchange reserves increased and they turned to increasing gold reserves. With the advancement of de-dollarization in the future, the trend of global central banks systematically increasing their gold reserve holdings will become increasingly prominent in the long term.

Top 20 countries/organizations with global gold reserves

According to data from the World Gold Council, the central banks demand for gold purchases has increased sharply starting in the second half of 2022, with a total of 840.6 tons of gold purchased in the second half of 2022, 1.8 times the total in 2021. The central banks demand for gold purchases in the first half of this year was slightly lower than that in the second half of last year, but it also reached a high of 387 tons, setting a new high since the statistics were collected in 2000. Among them, Turkeys domestic gold demand was strong due to the unstable political situation. The government temporarily banned the import of some gold bars and sold gold to the domestic market. This does not represent a change in Turkeys long-term gold strategy. Generally speaking, Turkeys gold sales in the second quarter did not weaken the positive trend of overall central bank gold demand. Among them, the largest amount of gold purchases was from mainland China, which purchased 57.85 and 45.1 tons in the first and second quarters respectively. According to data on October 13, Chinas gold reserves stood at 70.46 million ounces at the end of September, an increase of 840,000 ounces from the previous month. This was the 11th consecutive month of increase. In the past 11 months, the cumulative increase in the gold reserves of the Peoples Bank of China reached 7.82 million ounces. Historically, the central bank of China’s gold purchases have been strategic and rarely sold.

• BTC

The total supply of BTC is fixed at 21 million, and the current circulation is 19.51 million, accounting for approximately 90% of the total supply.

The current inflation rate of BTC is about 1.75%, and the annual inflation rate of gold is about 2%. The two are relatively close. Due to the setting of Bitcoin halving, the inflation rate of Bitcoin BTC will be significantly lower than gold in the future. The most recent (2020) halving reduced the number of Bitcoins issued in each block from 12.5 to 6.25. The next one will The halving is expected to occur at the end of April 2024.

The demand side is divided into two parts: handling fees and investment demand. The handling fees consumed by BTC every day for most of this year are about 20-30 BTC. It is roughly estimated that the handling fee expenditure is about 10,000 BTC per year, accounting for 0.5% of the total circulation. The rest is investment or speculative demand.

2. Macro environment

From the disintegration of the Bretton Woods system to about 2000, inflation expectations and hedging demand were the main determinants of gold prices. In 2004, the gold market began to introduce ETFs. With the launch of gold ETFs and the expansion of gold-related trading markets, the financial status of gold Attributes are enhanced, and real interest rates and the US dollar index have become important factors influencing gold prices.

• dollar index

Theoretically, the price of gold is usually inversely proportional to the value of the U.S. dollar. Because gold is priced in U.S. dollars, an increase in the U.S. dollar will make the price of gold relatively high. Gold becomes more expensive while its own price remains unchanged, putting downward pressure on the price of gold. ; From another perspective, from a long-term perspective, after the collapse of the Bretton Woods system, the U.S. dollar left the gold standard. Gold is essentially a hedge against credit currencies (mainly the U.S. dollar). The stronger the credit of the U.S. dollar, the lower the gold allocation value, and the U.S. dollar The weaker the credit, the higher the value of gold allocation. Periods during which gold and the U.S. dollar rise simultaneously are usually accompanied by geopolitical or economic shocks such as oil crises, subprime mortgage crises, and debt crises, and market caution and risk aversion have increased significantly.

Historically, gold returns have been positive 80% of the time 12 months after the USD Index peaked (average return +14%, median +16%).

From the fourth quarter of 2022 to early 2023, the real yield on the 10-year U.S. Treasury bond remained volatile without significant fluctuations. However, the price of gold rose from a low of about $1,600 to $2,000 per ounce, and the gold price deviated from the constraints of long-term U.S. yields. From October 2022 to January 2023, due to the expected economic recovery after Chinas epidemic was relaxed and the rebound of the European economy, the growth momentum outside the United States was stronger, causing DXY to fall by nearly 9%. During this period, gold It mainly follows the rise of DXY.

U.S. Treasury real yield

Gold is an interest-free asset, and the U.S. dollar is an interest-earning asset. U.S. dollar yields and inflation expectations are the two forces driving gold price changes. The real interest rate in the United States (nominal interest rate-inflation expectations) is the opportunity cost of holding gold. In theory, The two are negatively correlated. From another perspective, the U.S. real interest rate represents the real rate of return that can be achieved in the U.S. dollar system, and is an indicator that can be used to measure the credit strength of the U.S. dollar.

Both the U.S. dollar index and U.S. Treasury real yields can be used to explain changes in gold prices. The correlation between gold and the two is different in different periods. Since the 21st century, except for the period before 2005, the price of gold has been significantly negatively correlated with the real yield of 10-year U.S. Treasury bonds for most of the time. The real yield of U.S. Treasury bonds has dominated the gold price for a relatively longer period of time than the U.S. dollar index. For a long time, it can be considered that the real interest rate is the most important factor affecting the long-term price of gold.

The sensitivity of gold prices to real interest rates has declined since 2022. With the rapid rise in real yields on U.S. debt, the price of gold has fallen less than in history, showing better resilience. Neither real yields nor the U.S. dollar index can fully To explain gold’s price changes during this period, this may be mainly related to the central bank’s gold buying craze that will begin in the second half of 2022. The World Gold Council released a report on October 9 stating that the total annual gold reserves of global central banks will maintain a strong growth trend. In August, global central bank gold reserves increased by 77 tons, an increase of 38% from July. Structural changes may be occurring on the demand side of the gold market. The change.

3. Geopolitics

The so-called buying gold in troubled times, the outbreak of geopolitical conflicts will increase the demand for capital hedging and stimulate a rapid rise in gold prices in the short term. For example, after the conflicts between Russia-Ukraine and Palestine-Israel in 2022, the price of gold will rise by around US$2,000 per ounce, which is the real yield rate in the United States and What the dollar fails to explain.

• Asset price changes after the Russo-Ukrainian war

On February 24, 2022, Russian President Vladimir Putin announced that the Russian army will conduct a military operation aimed at the demilitarization and denazification of Ukraine. The Russian army has no plans to occupy Ukrainian territory and supports the self-determination of the Ukrainian people. right. Minutes after Putins speech ended, the Russian military launched cruise missiles and ballistic missiles at military bases and airports in Kiev, Kharkiv and Dnipro, destroying the Ukrainian National Guard headquarters. Subsequently, the Russian army launched attacks on the Ukrainian-controlled Luhansk region, Sumy, Kharkiv, Chernigov, Zhytomymir and other places, and launched attacks in the southern Ukrainian cities of Mariupol and Odessa. , the Russian army carried out a large-scale amphibious landing.

Between February 25 and March 8, gold continued to rise by about 8%. BTC did not show obvious fluctuations in the three or four days after the war. It rose by 15% on March 1, but soon fell back to before the rise. As of March 8, when gold reached its highest point, BTC was trading at $38,733, up 4% from the price before the conflict, and the Nasdaq index fell by about 1.5%.

From March 9 to the end of March, as Europe and the United States and other countries announced sanctions against Russia, the market expected the worst outcome of the event to come true. Gold prices immediately fell from their historical highs. BTC and the Nasdaq index fluctuated briefly for a few days. Starting from March 14, gold prices fluctuated while BTC and Nasdaq rose together. By the end of March, BTC rose by 20%, gold’s gains narrowed to 2% (compared to February 24), and Nasdaq rose by 6%.

At the same time, the Federal Reserve started this round of interest rate hike cycles in March 2022. The impact of the Russia-Ukraine war on asset prices has gradually weakened, and the trading logic has shifted to the Fed raising interest rates.

Starting in April, with the interest rate hike, BTC and the Nasdaq index simultaneously started a long downward period. After a brief rise, the price of gold also started a long-term downward period on April 19. The Nasdaq bottomed out at about 10,000 points in October 2022, with a cumulative decline of 28% since the interest rate hike; gold bottomed at $1,615 in September and October, with a cumulative decline of 16% since the interest rate hike; BTC saw a cumulative decline of 16% in November. The bottom was around US$16,000, with a cumulative drop of 66% since the interest rate hike.

After hitting the bottom, gold was the first to start a new round of market, rising continuously since the beginning of November. The high point appeared on May 4 at $2,072, and the low point rose by 28%. The prices of BTC and the Nasdaq Index started two months later than gold. Starting in 2023, BTC and the Nasdaq Index began to rise simultaneously again. The highs of BTC and the Nasdaq Index appeared simultaneously in mid-July, and BTC reached its highest level. It reached around 31,500, and the low point increased by nearly 1 times. The Nasdaq reached a maximum of 14,446, and the low point increased by 44%.

This wave of rise is mainly related to the phased peaking of U.S. bond interest rates in early November. Since early November, the decline in U.S. bond interest rates has driven a significant rebound in risk asset prices. The main trigger was that the CPI and core CPI data in October both fell more than expected, and the inversion of the 10 Y-2 Y U.S. bond interest rate further deepened, reflecting that the markets expectations for the economy and inflation have been revised downwards to a large extent. The peak and fall in U.S. CPI and core CPI drove the peak and fall in the 10-year U.S. bond yield, which also led to a slowdown in the pace of interest rate hikes by the Federal Reserve. Later, due to the artificial intelligence craze in the Nasdaq, gold and BTC also had their own independent narrative blessings, relaying the further upward movement of each market.

Overall, judging from the synchronization between BTC prices and gold after the Russia-Ukraine conflict, it is believed that BTC does not reflect strong hedging properties.

Changes in asset prices since the Israeli-Palestinian conflict

In the early morning of October 7, 2023, local time, the Palestinian Islamic Resistance Movement (Hamas) launched the operation code-named Aqsa Flood and fired more than 5,000 rockets into Israel in a short period of time. Thousands of militants launched three-dimensional attacks The way of fighting was to enter Israel from the Gaza area and clash with the Israeli army. Israel subsequently launched multiple rounds of air strikes on the Gaza Strip. Israeli Prime Minister Netanyahu declared that Israel had entered a state of war and said that the Israeli army would use all its military power to destroy Hamas.

Gold is the asset that has risen most significantly since the conflict, rising from 1832 on October 9 to nearly 2000 US dollars on October 26, an increase of about 8%, which coincidentally coincides with the increase in the Russia-Ukraine conflict; BTC on October 7 By the 13th, it fell from 28000 to 26770, a drop of 4.4%. It began to rebound on the 13th. On the 16th, it experienced an own incident when BlackRock BTC ETF application was approved. The daily line experienced a sharp rise and then pulled back. At the close, it still retained half of the increase and rose to 28546. , the ETF continued to ferment through expectations, rising to $34,183 as of the 25th; the Nasdaq rose slightly from October 9th to 11th, and began to fall from the 12th, falling from 13,672 points to 125,956 on October 20.

The trends of this wave of BTC and the Nasdaq are almost completely opposite, and they have formed an independent market. First, judging from the price performance of BTC that was opposite to that of gold in the past week after the war, it is believed that BTC still does not reflect the attributes of a safe-haven asset, and the subsequent rebound is This is because the market’s confidence in the approval of the BTC spot ETF has been rekindled and continues to ferment after the SEC did not appeal the Grayscale Bitcoin Trust case.

3. Is BTC a safe-haven asset?

BTC is highly similar to gold in terms of supply and demand, inflation, etc. From the model design and logic, BTC should have hedging properties. As Arthur Hayes explained in the article For the War, war will lead to violent inflation. The common way for ordinary citizens to protect their property is to choose gold hard currency. However, if a large-scale war breaks out in the country, the government may ban it. Private ownership of precious metals, restrictions on trading of precious metals, and even forcing gold owners to sell their bullion to the government at low prices. Holding a strong currency is also subject to strict capital controls. Only Bitcoins value and transmission network do not rely on government-chartered banking institutions and have no physical existence. Ordinary people can take it anywhere without being subject to control. When faced with a real war scenario, BTC is actually the best asset to have over gold and strong currencies.

However, judging from the actual price of the asset so far, BTC has not shown obvious hedging properties.

Supplement the asset price changes before this round of U.S. dollar tides before the Russia-Ukraine conflict to better understand the changes in various assets in a complete cycle. The outbreak of the COVID-19 epidemic in early 2020 caused inflation expectations to plummet, forcing the Federal Reserve to significantly cut interest rates to 0-0.25% and launch unlimited QE in late March 2020. Asset prices have risen collectively, and gold prices have risen most rapidly. In August 2020, the London gold price hit a record high of $2,075 per ounce, and then began to retreat; from 6,631 on March 30, 2020 to 6,631 on November 21, 2021. At 16,212 points, the Nasdaq rose a total of 144%; during the same period, BTC rose from $6,850 to 58,716, a total rise of 757%.

With the entry of traditional funds since 2020, the price of BTC has increasingly shown the characteristics of some major assets. During this period, the rise and fall of BTC were more consistent with the trend of the Nasdaq. The difference in the price performance of gold here is considered to reflect its The function of safe-haven assets during the special period of the epidemic, the spread of epidemic panic and concerns about a serious economic deterioration are the driving forces behind the rise in gold prices in addition to real interest rates. On the other hand, the new crown epidemic has also caused layers of obstacles in the transportation of gold, driving up the price of gold. Rise faster.

We can find that whether looking at the long-term rise and fall of this round of US dollar tide, or looking at the short-term conflicts of geopolitics, BTC does not show obvious hedging properties, but its initial performance is more consistent with the Nasdaq index. High correlation. It should be pointed out that the price of gold, a so-called safe-haven asset, shows very strong financial attributes in the big cycle. It is also affected by interest rates in a long range and maintains the same price trend as the Nasdaq.

4. Outlook for future trends

In October, many Fed officials made dovish remarks. For example, Dallas Fed President Logan, who was previously hawkish, said that rising U.S. bond yields may reduce the need to raise interest rates; Fed Vice Chairman Jefferson said that when judging future monetary policy, he would Consider the tightening of financial conditions caused by the recent rise in bond yields. In his speech at the Economic Club of New York on Thursday, October 19, Federal Reserve Chairman Powell hinted that as long as recent efforts to reduce inflation continue to make progress, the rise in long-term U.S. bond yields may cause the central bank to continue to suspend interest rate increases at the next meeting, but at the same time The Federal Reserve will continue to work to sustainably reduce inflation to 2% and does not rule out the possibility of raising interest rates again in the future. After Powells speech, the probability of no interest rate hike in November implied by CME interest rate futures has risen to 99.9%, but in 10 years U.S. bond interest rates surged again last week and once exceeded 5.0% during the session. The expectation of a short-term interest rate hike is no longer a point of gaming for U.S. bond yield traders. The rise in interest rates on the day of the speech may, on the one hand, reflect Powells cautious attitude. The speech was interpreted as a hawkish tone. On the other hand, it was also a concern that the U.S. fiscal may continue to expand and increase debt issuance.

Overall, it seems that based on current economic data, it is speculated that the 5% level of the ten-year U.S. bond yield is the top position that the Federal Reserve believes. Short-term U.S. bond yields will continue to run at high levels. In the long term, according to the dot plot and market forecasts, next year’s Fed meeting There is a probability that interest rates will begin to be cut, and the change in the main axis of the Federal Reserves monetary policy will change the most important underlying logic of global asset allocation in 2024. Generally speaking, the allocation window for gold and BTC is approaching, and it is more a matter of timing.

1. Gold

The real yield on U.S. Treasury bonds is still the main driver of gold prices. After the cycle reverses next year, the negative correlation between gold and the real yield on 10-year U.S. Treasury bonds will be revived. The real yield on U.S. Treasury bonds will once again become the main and sustained driver of gold prices. Price driving factors; secondly, the general trend of multipolarization of the international monetary system, the promotion of anti-globalization and the rise of non-US currencies will affect the credit of the US dollar in the long term, supporting the central banks continued gold purchases. Therefore, in the long run, gold is expected to usher in an upward cycle under the dual influence of cycle reversal and structural change forces, breaking through the previous historical high.

Gold prices will remain volatile in the short term, with geopolitics still being the main influencing factor and price trends depending on whether the Palestinian-Israeli conflict expands to other parts of the Middle East. The author believes that if the conflict is limited to Palestine and Israel, the growth of gold will most likely cease, and it will be difficult to break through the psychological pressure level of 2,000 US dollars per ounce; if the conflict between Palestine and Israel spreads to surrounding oil-producing countries such as Iran and Saudi Arabia, even in extreme cases Triggering an oil embargo or a sharp drop in production may have a greater impact on the crude oil supply chain, prompting further increases in crude oil and gold. At the same time, rising energy prices and transmission to other commodity prices will prompt a rebound in CPI growth, causing more problems in the macro environment. variable. Based on the current situation, the probability of the first scenario may be higher.

2、BTC

Similarly, as the Federal Reserve starts the next cycle in 2024, the overall liquidity of the market improves, the risk appetite of global investors increases, and the unique market logic is superimposed. Affected by the ETF and halving market, Bitcoin will reappear in the bull market. It is also expected to break through the previous high. The driving factor in the short term is still the SEC’s approval of the spot BTC ETF, and the price of BTC has recently risen sharply to more than $34,000. We will have an in-depth discussion on the specific impact of spot ETFs on BTC prices and post-pass BTC price predictions in future research reports, so stay tuned.

• This article is solely the authors personal opinion and does not constitute investment advice to anyone.