Bitcoin Is Seriously Competing With Gold

From ecoinometrics substack

 been around for a while, and it's now the dominant view of what Bitcoin represents for investors of all kinds.

Bitcoin and gold have different properties. This suggests investors might want both in their portfolio as stores of value:

But in practice, many investors will allocate only a small portion of their portfolio to store-of-value assets. This puts Bitcoin and gold in direct competition.

At first glance, looking at the big picture, gold still dominates. The total market size of gold is about $18 trillion, while Bitcoin is at $1.9 trillion, about 10% of gold's value.

However, this comparison might be misleading. Not all above-ground gold is tied to investment vehicles. The financial gold market is only about $5 trillion. This means Bitcoin already represents 40% of this market.

If the current Bitcoin bull market continues, Bitcoin could overtake gold in terms of investment value.

Bitcoin has now been de-risked: global bans are unlikely, it won't collapse as a bubble, and it's positioned to stay relevant for the long run.

Bitcoin Miners: Good, Not Great

The chart compares the performance of Bitcoin mining stocks against Bitcoin since the rally began in September.

Bitcoin is up 76%, while the average mining stock has gained 58%.

This is positive news for mining businesses. Their stocks should continue to rise since their profits are directly linked to Bitcoin's value.

But is it impressive? Not really. These stocks have relatively small market caps and carry more risk than holding Bitcoin directly. Historically, this combination has led to much stronger returns compared to Bitcoin during bull markets.

So while miners aren't a bad investment, they're underperforming expectations.

For a deeper analysis of the Bitcoin miners trade,  check out Wednesday's newsletter edition .

The New Normal For Inflation

The November CPI inflation data for the US is out:

The picture isn't encouraging. The Federal Reserve has managed to control inflation, but core inflation (especially in services) has remained flat for six months. The problem? It's stuck at a level much higher than before the pandemic.

If this becomes the new normal, it will hit Americans with below-average wage growth the hardest. This could further widen the economic divide in the US.

Consumers see this coming. The Michigan consumer survey shows the 5-year inflation expectations of 3% or higher since April 2024.

This inflation level is becoming anchored, making it more likely to stick around.

Meanwhile, the Federal Reserve continues to cut rates. This suggests they're comfortable with higher core inflation as long as it's stable. One explanation: higher inflation makes it easier for the US government to manage its debt.

This steady devaluation of the US dollar is pushing more investors toward Bitcoin as a store of value.

That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.

Cheers,

Nick

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