Gold Glitters as Bitcoin Backs Off
Despite a 71 percent rise in gold prices in phases this year, the price of Bitcoin—often dubbed “digital gold”—has fallen by 6 percent, indicating a clear shift in investor preference from digital assets to physical gold.
According to international media reports, Bitcoin theoretically had strong grounds for appreciation this year, much like gold. During the COVID-19 period, global economic uncertainty had significantly driven up Bitcoin prices. The cryptocurrency also saw notable gains before and after Donald Trump assumed office as US President. However, despite persistent uncertainty, Bitcoin’s expected price surge failed to materialise this year.
Market analysts say investors typically turn to Bitcoin during uncertain times. Geopolitical tensions also remained elevated throughout the year, further intensified towards the end when US President Donald Trump halted Venezuelan oil tankers, adding fuel to global instability.
From an economic perspective, Bitcoin had reasons to rise. The United States’ budget deficit has reached extreme levels. According to the International Monetary Fund (IMF), US national debt now stands at 125 percent of GDP and is projected to reach 143 percent by 2030, surpassing debt levels of countries like Italy and Greece.
There was also a technological expectation. If Bitcoin is viewed as a vehicle of tech-driven enthusiasm, the artificial intelligence (AI) revolution was expected to provide momentum. While debates continue over whether AI-related assets are overvalued, Nvidia—widely regarded as the backbone of AI—has still seen its share price rise by about 33 percent this year.
Meanwhile, US regulators appeared supportive of Bitcoin, with mainstream financial institutions now marketing crypto exchange-traded funds (ETFs). In contrast, UK financial regulators remain cautious and have proposed bringing large parts of the crypto market under tighter oversight.
This may partly explain Bitcoin’s decline. As Bitcoin gains acceptance in the financial mainstream, it is losing some of its revolutionary appeal. When institutions like JP Morgan and BlackRock classify Bitcoin as a standard asset class, its disruptive character diminishes. Google search interest for “Bitcoin” has stabilised, and tech entrepreneur Elon Musk no longer tweets about it—his focus has shifted elsewhere.
Data shows that by October, the trajectories of gold and Bitcoin clearly diverged, with Bitcoin experiencing a sharp drop. What exactly triggered the fall on October 10 remains debated. However, following a comment by President Trump threatening tariffs on China, a massive sell-off occurred in the relatively small Bitcoin market.
After that, Bitcoin—unlike stocks or precious metals—failed to recover. The total crypto market lost more than $1 trillion in value within six weeks. Bitcoin’s price dropped from $126,000 in early October to around $87,000.
In a research note published a month ago, Deutsche Bank analysts identified five key reasons for Bitcoin’s decline: a broad “risk-off” sentiment in October, hawkish messaging from the US Federal Reserve on interest rates, slower-than-expected regulatory progress, liquidity shortages, and withdrawals by institutional investors. Long-term holders also took profits.
The analysts concluded that whether Bitcoin will stabilise after this correction remains uncertain. Unlike previous crashes driven largely by retail speculation, this downturn has occurred despite significant institutional participation and policy advancements, amid challenging global macroeconomic conditions—raising fears that the trend could be long-lasting.
Hardcore Bitcoin investors, however, believe every shock presents a buying opportunity. Their confidence has rarely wavered, and history shows that Bitcoin has rebounded strongly after major declines. In that sense, their optimism cannot be entirely dismissed.
Still, this year appears to have exposed a crack. As investors seek safe havens, they are increasingly turning to gold and silver rather than relying on computer code.
Interest has waned in a technology that has yet to gain widespread acceptance as a medium of exchange. As the year draws to a close, questions are being raised about the depth and resilience of the Bitcoin and broader crypto markets. The earlier excitement is noticeably absent.
Analysts note that Bitcoin is far more volatile than gold and lacks solid fundamentals. As a result, market bubbles can form and burst easily, leading to significant capital losses.
For these reasons, a large section of analysts believes Bitcoin can never truly replace gold.
DBTech/AS/MUM/OR
