The rocketing value of Bitcoin appears to be coming at the expense of the gold price – and that can't be good news for ASX gold miners.
The question is whether investors should quit these outperforming ASX stocks while they are still ahead.
The price of the most popular cryptocurrency surged to a record high of US$23,000 earlier in the month before pulling back. But Bitcoin is still hovering close to these record highs.
Bitcoin eating gold's lunch
In the meantime, gold's rally seems to have stalled. After hitting an all-time high of US$2,075 an ounce in August, it's fallen around 10%.
Experts believe that gold investors are starting to switch to Bitcoin as a hedge against inflation. Online payment leaders like Paypal Holdings Inc (NASDAQ: PYPL) and Square Inc (NYSE: SQ) are also legitimising the crypto by processing Bitcoin payments.
ASX gold miners facing a Bitcoin challenge?
This trend threatens ASX gold stocks after many have delivered strong returns in 2020 as COVID‐19 drove investors to safe haven assets.
The Ramelius Resources Limited (ASX: RMS) share price jumped 42%, the Evolution Mining Ltd (ASX: EVN) share price added 35% and the Northern Star Resources Ltd (ASX: NST) share price gained 12% in the past year.
In contrast, the S&P/ASX 200 Index (Index:^AXJO) is yet to fully recover all the losses from the COVID market meltdown.
Why you shouldn't write-off ASX gold stocks just yet
But all may not be lost for the yellow metal. Goldman Sachs believes that gold and Bitcoin can coexist, reported Bloomberg.
While the investment bank acknowledges that Bitcoin is stealing some of gold's thunder during times of economic stress and uncertainty, the precious metal can't be replaced.
"Gold's recent underperformance versus real rates and the dollar has left some investors concerned that Bitcoin is replacing gold as the inflation hedge of choice," Bloomberg quoted Goldman as saying.
While there's been some substitution, "we do not see Bitcoin's rising popularity as an existential threat to gold's status as the currency of last resort."
Bitcoin vs. gold in safe haven battle
There are a few reasons driving Goldman's view. The bank pointed out that Bitcoin suffers from transparency issues, which discourages institutions and wealthy investors from investing in the crypto – at least not in a big way.
The wildly fluctuating price of Bitcoin is another turn-off. There's too much "hot money" in Bitcoin as traders use it to make speculative profits as opposed to an insurance policy.
This means there is a lower probability that the value of Bitcoin will hold when distressed investors need it to.
I would also point out that gold has a 3,000-year track record as a safe haven. Even if Bitcoin does evolve to be a good substitute, this won't be happening overnight.
