Bitcoin Underperforms Gold Amid Central Bank Demand Surge

• Bitcoin’s performance has lagged behind gold, with the BTC-to-gold ratio falling since March.
• Emerging central banks’ demand has driven gold to record highs, despite high interest rates.
• Corporates are increasingly adding Bitcoin to treasuries, though central banks remain cautious.

Bitcoin has lost its value against gold, with the Bitcoin-to-gold ratio falling from 33 ounces in March to 24 ounces by September, according to Kaiko.

This decline is partly due to a broader sell-off in risk assets, but it also highlights the strong performance of gold. Demand for gold has surged, driven by central banks seeking to diversify their reserves. 

Meanwhile, gold demand surged to record highs between March and August. Central banks in emerging markets drove this demand, seeking to diversify away from dollar-denominated assets. Many central banks continued to accumulate gold even when high interest rates typically discourage it. These conditions supported the increase in the price of gold.

High Interest Rates and Diverging Institutional Support

High interest rates usually make gold less attractive because they increase the opportunity cost of holding non-yielding assets. But central bank demand has offset these pressures, allowing gold to remain strong. In contrast, Bitcoin has not enjoyed such institutional support. While some companies have started adding Bitcoin to their treasuries, it is far more volatile than gold and lacks the stability that central banks typically seek.

Notable companies like Japan’s Metaplanet and the US-based Semler Scientific have followed MicroStrategy’s lead in accumulating Bitcoin. These firms see Bitcoin as a hedge against global instability, similar to gold. Both companies further plan to use debt to fund their Bitcoin accrual.

The correlation between these companies’ stock prices and Bitcoin has increased since their Bitcoin acquisitions. Metaplanet’s stock price now has a correlation of 0.4 with Bitcoin, while Semler Scientific’s correlation is 0.5. MicroStrategy, an early adopter of Bitcoin, has the highest correlation at 0.7. 

While more companies view Bitcoin as an investment opportunity, central banks remain concerned about the cryptocurrency’s price fluctuations. Unlike gold, which has historically been a safe haven, Bitcoin’s volatility makes it an undesirable option for governments looking to store their reserves. However, Bitcoin continues to attract companies seeking new ways to manage risk.