By Mike Maharrey
Investors have enjoyed quite the windfall in the last month, with the price of Bitcoin surging from $68,000 to over $99,000. But with Bitcoin’s history of rapid price gains followed by significant selloffs, how can you protect your gains during the next downturn?
One option is to convert your Bitcoin to gold or silver during the correction period. This move will safeguard your gains from both market selloffs and the relentless devaluation of the dollar.
Bitcoin Is Volatile
Bitcoin’s price has shown an overall upward trend over time, but it is extremely volatile in the short term. Since its inception in 2009, Bitcoin has experienced dramatic price swings, from fractions of a cent to over $99,000 in 2024. Each peak and correction in Bitcoin’s chart reflects evolving market dynamics and shifting investor sentiment, showcasing significant volatility.
Bitcoin’s one-year volatility is around 50 percent, more than double that of gold. While gold tends to be less volatile and serves as a safe-haven investment, it does not devalue like fiat currencies, making it a valuable option to preserve Bitcoin gains during market downturns.
Gold and Bitcoin Aren’t the Same
Although Bitcoin is often referred to as “digital gold,” there are significant differences between the two assets. Bitcoin behaves more like a risk asset and correlates closely with tech stocks, while gold is less volatile, has a more liquid market, and trades within an established regulatory framework.
As a Bloomberg report highlighted, the long-term correlation between Gold and Bitcoin has been close to zero, making them additive to multi-asset portfolios. Gold serves as a hedge against market volatility and inflation, offering stability and diversification benefits.
Using Gold as a Bitcoin Hedge
To mitigate the anxiety caused by Bitcoin selloffs, investors can sell Bitcoin during bearish periods and buy gold (and silver) to preserve profits. Holding precious metals through a Bitcoin bear market can help safeguard gains and potentially lead to additional profits. When the market starts to recover, investors can sell the precious metals and reinvest in Bitcoin.
Understanding the differences between Bitcoin and gold, and utilizing gold as a hedge against Bitcoin volatility, can help investors navigate market uncertainties and protect their financial interests.