3 Impacts of Bitcoin Halving on Gold As Prices Soar

Gold prices increased exponentially in the last three months, reaching a new all-time high of $2,431 on April 15. However, the remarkable rise in Bitcoin price came to a sudden halt last weekend, with the largest digital asset plummeting to lows at $60,000 on most exchanges. Despite the drop in the value of BTC, which has triggered a widespread sell-off in the crypto market, Bitcoin halving is fast approaching, likely to occur on April 20.

The world’s most expensive precious metal’s steady rise underscores the growing geopolitical tensions in Europe due to the Russia-Ukraine war and the West Asia due to Israel’s operation in Gaza and recently, the tension between Iran and Israel.

Although prices in the crypto market are performing dismally this week, Bitcoin halving may turn the tables around, resulting in remarkable movements.

For now, Bitcoin price holding above $60,000 is good enough for investors who foresee a larger breakout post-halving.

The rally in gold prices might be influenced by the approaching Bitcoin halving in one way or the other. Hence, this article will delve into some of the factors to help investors as they consider these two scarce assets in their portfolios in 2024.

1. Bitcoin Halving Driving The Scarcity Narrative

Gold derives its value from its scarcity. As a rare metal, gold has become a store of value for governments that maintain reserves in central banks and other international financial institutions. Business entities like hedge funds, fund managers as well as individuals hold gold.

The rise of Bitcoin, on the other hand, as digital gold has seen a competitive shift over the last decade, with institutions shifting from having 100% traditional asset allocation to incorporating Bitcoin in smaller percentages of 3% and 5%.

With halving in two days, Glassnode highlights that portfolios with allocations in Bitcoin performed better than those without.

According to the blockchain insight “adding a small crypto allocation to a traditional 60/40 portfolio notably boosted returns: a 3% allocation yielded 52.9% returns, & a 5% allocation brought 67.0%, far surpassing the traditional strategy’s 33.3% returns.”

The perfect diversifier? From April 2019 – March 2024, adding a small crypto allocation to a traditional 60/40 portfolio notably boosted returns: a 3% allocation yielded 52.9% returns, & a 5% allocation brought 67.0%, far surpassing the traditional strategy’s 33.3% returns. pic.twitter.com/pC6XcEzLe6

— glassnode (@glassnode) April 16, 2024

As Bitcoin halves, its scarcity is expected to rise exponentially, possibly topping gold. This bullish outlook for Bitcoin could be driving investors to buy more gold to hedge against harsh economic times, especially with inflation skyrocketing globally.

2. Bitcoin Parabolic Rally Pre-Halving

The rally in Q1 2024 was majorly fuelled by increasing demand for Bitcoin ETFs, which were approved by the SEC in January. Additionally, the outlook of an incoming halving spice things up further for investors.

As Bitcoin became even more bullish pre-halving, it started to dawn on traditional entities with allocations of BTC in their portfolios to redistribute their crypto profits into gold, which is believed to be a better store of value.

Although Bitcoin performs better yearly than traditional assets, it is regarded as a high-risk investment, prompting investors to seek trading hedges like gold.

3. Geopolitical Tensions Ahead of Bitcoin Halving

The war in Gaza due to Israel’s operation following the attack by Hamas on its soil last year has escalated roping in Iran. These growing tensions just before halving do not sit right with investors who had envisioned ballistic movements in crypto prices, mirroring the bullish outlook in Q1.

Although Bitcoin’s picture pre-halving has significantly been affected by the Israel-Hamas with Iran on the verge of joining the war, gold upholds a sustained rally.

It is normal for investors to seek refuge in assets considered less volatile and more prevalent during economic downturns like gold. Bitcoin functions as a store of value, but due to its volatility gold gains an edge over it. This long-term outlook for gold has triggered a pre-Bitcoin halving shift with investors choosing to buy gold rather than hold Bitcoin.

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