Gold and Bitcoin Amidst Global Capital Market Fluctuations

Recently, the global Capital Market has experienced significant Fluctuation, with the appreciation of the yen triggering a shift in carry trade, and the VIX index soaring. Even gold has slightly adjusted due to liquidity shocks, while Bitcoin has sharply declined alongside risk assets. Although this seems to contradict the "twin" nature of gold and Bitcoin, we still believe that as the new international monetary system evolves rapidly, the twin relationship between Bitcoin and gold will become even closer.

Looking back at the history of gold prices, since 1970, the price of gold against the US dollar has undergone three major upward cycles. The 1970s was a glorious period for gold, with prices rising more than 17 times at their peak. This period coincided with the collapse of the Bretton Woods system, the decoupling of the dollar from gold, coupled with two oil crises and geopolitical tensions, fully demonstrating gold's value preservation and safe-haven attributes.

The second round of the upward cycle occurred during the decade of the early 21st century, with gold prices rising by more than five times at their peak. During this period, the internet bubble burst, global economic growth slowed, and the outbreak of the subprime mortgage crisis and the European debt crisis prompted central banks in developed countries to initiate quantitative easing policies, driving down real interest rates and enhancing the appeal of gold.

Currently, we are in the third round of the upward cycle, which began in 2019, and gold prices have nearly doubled. This round of increase can be divided into two phases: from the end of 2018 to early 2022, affected by the China-U.S. trade friction and the COVID-19 pandemic, global monetary policies have become more accommodative; from 2022 to now, despite the rapid interest rate hikes in the U.S. to combat high inflation, gold prices have still risen by over 30%.

Traditional economics believes that the price of gold is negatively correlated with real interest rates. However, this theory seems no longer applicable in the post-pandemic era, as the price of gold has exhibited an independent trend. This phenomenon reflects the market's response to the transition period of the new international monetary system, essentially strengthening the "consensus" on the monetary attributes of gold, and also serving as a defensive diversification against the credit system of the US dollar.

Central banks and the private sector around the world are increasing their gold reserves to diversify away from dollar risks. From 2020 to 2023, net purchases of gold by global central banks surged from 255 tons to 1,037 tons. The private sector, especially in non-European and non-American countries, is also ramping up investments in gold.

Bitcoin shares many similarities with gold, such as scarcity, decentralization, and non-falsifiability. With the U.S. SEC approving the first batch of Bitcoin ETFs, Bitcoin is further moving towards mainstream adoption. In recent years, the positive correlation between Bitcoin and gold prices has significantly increased, suggesting that it may be gradually evolving from a high-risk asset into a "commodity currency."

Looking to the future, the international monetary system will enter a new stage, with a clear trend towards diversification of reserve currencies. In the context of rising global inflation and increasing geopolitical uncertainty, gold is still in the middle of an upward cycle. It is worth noting that the diversification of reserve currencies is not only occurring at the national level but that the private sector is also actively participating in this process. As the mainstream adoption of Bitcoin accelerates, its value as a reserve currency is expected to keep pace with gold, together playing an important role in the new international monetary system.