Gold vs Bitcoin: Which safe haven is a better investment this Diwali?

Palash Udhwani, an investment analyst with Kunji.io, explains the similarity between Bitcoin and gold, which by the way is a lot.

Touted as digital gold, Uthwani said, “BTC has many similar characteristics to gold, namely global availability, high demand and low supply. The supply and emission of BTC in the market cannot be changed as it is algorithmically programmed. The same factor contributes to drive the price of BTC over time. The total emissions of BTC in circulation decrease over time as emissions are halved every four years.”

According to the data from Kunji.io, which is India’s first crypto-asset management platform, Bitcoin has outperformed gold in the last five Diwali for the past five years.

Bitcoin witnessed a gain of 312.5% ​​on Diwali on October 19, 2017, while gold witnessed a gain of 29.5%. Furthermore, on Diwali held on November 6, 2018, Bitcoin recorded gains of 196.3% against gold which rose by 36.1%, but it must be noted that the yellow metal saw an upside in gains while Bitcoin’s gains were reduced from 2017- the levels. Especially on Diwali which was held on October 27, 2019, both Bitcoin and Gold saw their gains narrow to 99.9% and 11% respectively. But during Diwali 2019, Bitcoin still outperformed.

During November 14, 2020, Diwali, Bitcoin recorded a gain of 18.7%, while gold, however, fell by 11.6%. But on Diwali November 4, 2021, bitcoin fell drastically by 68.9% against gold which only fell around 6.7%. In 2021, gold outperformed Bitcoin. Overall, in 5 years, Bitcoin returned more than gold.

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Over the five years, while the average return on gold investments would be around 11%, the same for BTC is around 111.7%.

For a competitive quantitative analysis, Udhwani said, if you had bought gold worth ₹50,000 for every year starting in 2017 on Diwali, your current portfolio value of an investment of ₹2,50,000 would be ₹2,79,150. If you had bought BTC right away, the return would have been ₹5,29,250.

Udhwani said that the yield on BTC may look attractive, but the broader crypto landscape gives us many more opportunities to extract higher alphas. If you had taken positions in BTC along with a set of promising quality altcoins, a similar trend could be seen in the same.

To give an example, Udhwani said, you invest around $600, around ₹50,000, across six good quality altcoins from the previous 5 Diwali. The same with a combination of BTC would give a return of 659.624%, and a pure altcoin

play would have achieved a return of 1207%. The Altcoins used here in the strategy are ETH, BNB, LTC, XRP, ADA and LINK.

According to the expert, BTC, which is an important resource with a history of more than a decade, has also inspired many other decentralized projects and protocols, which offer a huge upside potential if the right strategic positions and risk management are taken.

Talking about the current state of the bitcoin-gold correlation, Udhwani said until the market reaches its peak hawkishness, pressure on gold and other semi-investment metals like silver and platinum is likely to persist. As investors are drawn in by a strong dollar despite rising interest rates, the correlation between bitcoin and gold has hit its highest level in 12 months.

Also, Udhwani added, “Although Bitcoin is seen as ‘digital gold’ and a hedge against inflation, investors are not as agreeable as the yellow metal. As inflation has risen in recent months, the value of Bitcoin and gold has drastically reduced . That resulted in a YTD correlation of +0.4. A strong dollar and high bond yields could lure investors away from the precious metal and Bitcoin.”

On Saturday, at the time of writing, Bitcoin is trading above the $19,200 mark and its 24-hour gain is around 1.5% on CoinMarketCap.

As per Good Returns data, 22 carat gold in India is available at ₹47,000 for 10 grams on Saturday from ₹750 from the previous day. While 24 carats in 10 grams are priced at ₹51,280 a piece higher with ₹830 from the previous day.

Meanwhile, on Friday, on the MCX, gold futures with expiry on December 5 ended at ₹50,635 up with ₹492 or 0.98% from previous day’s levels.

Disclaimer: The views and recommendations above are those of individual analysts or brokerage firms, and not of Mint.