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The New Yukon Gold Rush
The relationship between Bitcoin, gold, and the US dollar has long been a hot topic of debate since the emergence of Bitcoin. Often referred to as “digital gold,” Bitcoin is frequently compared to gold, the traditional safe-haven asset with a history spanning thousands of years. At the same time, Bitcoin, although not a complete form of currency, possesses basic monetary functions and is used for transactions and payments.
To accurately grasp the long-term trends of these three assets, one must deeply understand their intricate relationship.
On Wednesday, U.S. Federal Reserve Chair Jerome Powell shared his perspective on this issue, focusing on Bitcoin’s role in the American economy and whether the cryptocurrency poses a competitive threat to the U.S. dollar.
Bitcoin has surged in popularity and price this year, crossing the $100,000 mark with a remarkable 130% increase in 2024. While some attribute Bitcoin’s meteoric rise to declining confidence in the dollar and the Federal Reserve system, Powell refuted this notion
Powell dismissed the idea that Bitcoin is challenging the dollar’s dominance. Instead, he suggested that Bitcoin’s real competitor is gold.
“I don’t think that’s how people think about it,” Powell said. “People use Bitcoin as a speculative asset. It’s just like gold, only it’s virtual, it’s digital. People are not using it as a form of payment or as a store of value; it’s highly volatile. It’s not a competitor for the dollar, It’s really a competitor for gold, that’s really how I think about it.”
Despite its rising popularity, Powell emphasized that Bitcoin does not fulfill the functions of a currency in the way the dollar or other fiat currencies do.
This year, despite a strengthening U.S. dollar, both gold and Bitcoin—assets priced in USD—have experienced significant growth. Gold prices are up 28.44%, while Bitcoin continues its historic rally.
The suggestion that Bitcoin could replace gold as a long-term investment is met with skepticism by experts.
Peter Schiff, Chief Market Strategist at Euro Pacific Asset Management, emphasized that gold’s potential as a long-term investment remains unparalleled. He argued that, following its historic breakout after a prolonged consolidation period from 2011 to 2024, gold prices are poised for continued upward momentum. Schiff believes the recent surge in gold could be the beginning of a rally that might see prices double or even triple.
Additionally, Schiff dismissed proposals to substitute portions of the U.S. gold reserves with Bitcoin as misguided. Recently, Wyoming Senator Cynthia Lummis suggested converting a small fraction of America’s gold reserves—holding over 8,000 tons of gold—into Bitcoin to establish a Bitcoin strategic reserve for the government. Under her proposal, part of the gold would be sold to purchase one million Bitcoin (valued at nearly $90 billion), which would then be held over the next 20 years.
However, Schiff harshly criticized this proposal, calling it a “worst monetary mistake” and even labeling it “treasonous.” He explained that gold’s market depth allows it to handle large-scale selling without significant price disruption. In contrast, Bitcoin’s market lacks the liquidity necessary for such moves. Should the U.S. government attempt to sell substantial amounts of Bitcoin, Schiff argued, the market would inevitably collapse.
While Bitcoin continues to rise as a speculative and digital alternative to gold, experts and policymakers maintain that its extreme volatility and limited market liquidity prevent it from fully replacing gold as a strategic reserve asset. Similarly, Bitcoin’s role as a competitor to the U.S. dollar is dismissed, as it lacks the stability required to function as a widely accepted currency.
As confidence in alternative assets grows amidst global economic uncertainties, the debate around Bitcoin, gold, and the dollar is far from over.
