Gold and Bitcoin in the Turmoil of Global Capital Markets

Recently, the global Capital Market has experienced significant fluctuations, with the appreciation of the yen triggering a reversal in carry trades, a surge in the VIX index, and even gold seeing a slight pullback due to liquidity shocks. Bitcoin, on the other hand, has witnessed a substantial decline alongside risk assets. Although this seems contrary to the "twin" attribute, the accelerated evolution of the new international monetary system will continue to drive the further establishment of the relationship between Bitcoin and gold.

Looking back at history, since 1970, the price of gold has gone through three major upward cycles. The 1970s was truly the "golden era", with the maximum increase of gold against the dollar exceeding 17 times. Factors such as the collapse of the Bretton Woods system, the decoupling of the dollar from gold, the oil crisis, and economic stagflation all contributed to this rise. From the 1980s to the 1990s, as global inflation was brought under control and economic growth resumed, the price of gold entered a period of consolidation and decline.

The first decade of the 21st century witnessed the second round of increases, with gold prices rising more than fivefold at their peak. The bursting of the internet bubble, China joining the WTO, the subprime mortgage crisis, and the outbreak of the European debt crisis, along with developed countries' central banks initiating quantitative easing policies, were all driving factors. After 2010, with the strengthening of the dollar and the U.S. reducing QE and raising interest rates, gold once again entered a period of consolidation.

The third round of the increase began in 2019, and the price of gold against the US dollar has nearly doubled to date, but compared to the previous two cycles, there is still considerable room in terms of time and increase. This round of increase can be divided into two stages: from the end of 2018 to early 2022, affected by the China-U.S. trade friction, global interest rate cuts, and the pandemic, gold rose by about 50%; from 2022 to the present, despite the rapid interest rate hikes in the U.S. leading to an increase in real interest rates, the price of gold has still risen by more than 30%.

Traditional economics suggests that the price of gold is negatively correlated with real interest rates, but this relationship seems to have broken down in the post-pandemic era. The true value of gold lies in "consensus," and its monetary attributes are strengthening, reflecting a defensive diversification against the dollar credit system. Central banks and the private sector worldwide are increasing their gold reserves to mitigate dollar risk.

Bitcoin and gold share many similarities, such as scarcity, decentralization, counterfeit resistance, divisibility, and convenience. The SEC's approval of the first Bitcoin ETFs is undoubtedly a milestone event for the industry, pushing Bitcoin further into the mainstream. Recently, the positive correlation between Bitcoin and gold prices has significantly increased, suggesting that it may be evolving toward a "commodity currency."

The future international monetary system will enter a new stage, with a clear trend of diversification of reserve currencies. The global inflation central has shifted upward and geopolitical uncertainties have increased, while gold remains in an upward cycle. It is worth noting that the diversification of reserve currencies is occurring not only at the national level but also in the private sector. With the acceleration of Bitcoin's mainstream adoption, its value as a reserve currency is likely to rival that of gold.