Bitcoin Fares a Better Than Gold During Anti-Fiat Pullback

Bitcoin, BTC/USD Talking Points:

• Bitcoin continues to grind away at the 80k level even as rate hike expectations have built around the Fed.
• Gold on the other hand has pulled back more aggressively, even though it had broken out well before the Bitcoin move in August.

In an earlier article I looked at the pullback in gold, and while bulls still have an open door there, the fact of the matter is that the retracement there is more aggressive than what’s shown in Bitcoin. And at this point the question must be asked whether we’re in one of those periods where Bitcoin is situated to outperform gold as an anti-fiat vehicle. This would be similar to what showed in August of 2020, just after gold hit $2k for the first time. Bitcoin was struggling to get back above the $12k marker but that’s when BTC/USD came to life in a very big way. And as gold continued to range and hold resistance around $2k for the next three-and-a-half years, multiple life cycles showed in the crypto currency but it never fell below that same $12k marker.

And then in the aftermath of the 2024 Presidential election, gold had been rallying since jumping from the $2k level in February. Suddenly, gold found resistance about a week before the election and that’s when Bitcoin, again, came to life in a very big way, eventually jumping above $100k before ultimately finding resistance last year at $125k.

It was around that high where the narrative began to shift, and gold rallied in a big way while Bitcoin sold off. And it didn’t take long for headlines to declare the relationship between the two markets as dead with gold prevailing and Bitcoin going away.

But realistically these are different markets with very different drives, even if they are both arguable as a hedge against fiat currencies. Central banks accumulate and stockpile gold. Bitcoin, meanwhile, is still held by early adopters with low cost basis that can be extremely sensitive to fresh psychological levels, like the $125k marker that established the top last year.

Now this can be argued as a diminishing risk given that many of those early adopters have pared positions on the way up, but given the institutional role in gold markets it’s not debatable as to the dichotomy between holders of the assets.

Bitcoin (in Black) v/s Gold (in Blue), Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

Bitcoin v/s Gold’s Most Recent Cycle

Gold broke out in a big way last month following the July FOMC rate decision. Kevin Warsh sounded hawkish but obviously didn’t want to hike rates and the follow-through impact of that was a breakout in gold that extended on the Treasury buyback announcement from the US Treasury a couple weeks later.

But that’s when Bitcoin woke up, showing an even larger breakout and so far, it’s held on to more of that move.

As a measuring stick we can apply a Fibonacci retracement from the recent low up to the recent high, and Bitcoin has, so far, held support at the 23.6% retracement of that move. Gold, on the other hand, has touched down to the 50% marker and currently finds resistance at the 38.2% retracement of that same measured move.

Bitcoin Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

Bitcoin (and Gold) into the Next Two Weeks

Tension is high in US markets although it may not show if looking at equities, but that’s likely to do with the near-constant pumping from US officials as more and more capital drive into the AI boom. But at this point both US Treasury Secretary Scott Bessent and President Donald Trump have openly talked about how the US strategy is to ‘grow our way out of debt,’ despite the continued incline in US spending.

To do that there’s really only one way, by either decreasing debt cost or by increasing GDP and given that more and more debt is being issued and spending isn’t being reined in, it seems the obvious path is to try to push growth as much as possible.

How this turns out remains to be seen but the one item that seems or feels certain is that this entails more printing and less prudence and this is very much behind that initial catalyst for the gold rally from $2k back in 2024, when the Fed pushed towards rate cuts even with inflation well above their own 2% target.

Despite the fundamental drive, positioning is still most important as it takes actual buying and selling to propel prices in a real market and that’s why a setup like gold, as clear as it was around the Presidential election, could stall as Bitcoin takes over.

The question now is whether we’re at the forefront of another of those waves or whether the Fed will drive a hawkish refrain in an effort of tempering US Treasury yields. Because if the world is convinced that the Fed is disinterested in containing inflation, what’s the point in holding 10 or 30-year paper yielding a paltry 5%?

--- written by James Stanley, Senior Market Analyst, Global Macro