(Kitco News) - In a sharp turn of fortunes, gold has managed to outperform bitcoin since the start of the year; although the cryptocurrency has struggled in the first three months of the year, it remains an asset of growing importance among investors.
In an interview with Kitco News last month, Jigna Gibb, Head of Commodities & Crypto Index Products at Bloomberg Index Services, said that as inflation continues to eat away at the purchasing power of global currencies, both gold and Bitcoin have become important alternative assets and portfolio diversification tools.
She said in the current environment, rather than competing against one another, they should be working in tandem.
“Inflation has become the big elephant in the room and has become a significant risk. This is when alternatives come into the fray. This is when you need your alternative assets to work for you,” she said.
The comments came after the company announced the launch of the Bloomberg Bitcoin and Gold Equal-Weighted Index (BBIG), and the Bloomberg Dollar, Bitcoin and Gold Equal-Weighted Index (BBUG).
Bloomberg Index Services said in the press release that the Bitcoin and Gold Equal-Weighted Index was developed using a unit-based framework, which allows for future modification and customization of building blocks and weight based on client interest.
“These indices aim to capture Bitcoin's growth, coupled with Gold's historic stability,” they said. “The BBUG Index combines the U.S. Dollar's defensive attributes with Bitcoin and Gold’s potential, long-term uncorrelated characteristics.”
Gibb noted that the Bitcoin and Gold Index has a 50/50 weighting, which reduced the cryptocurrency’s volatility from about 50% to 30%. She added that this drop in volatility should make it more attractive to a broader group of retail investors.
Although King Crypto saw a significant rally last year after U.S. regulators approved the creation of spot Bitcoin-backed exchange-traded funds, the cryptocurrency has struggled since hitting highs above $109,000 per token in January.
Gibb said that demand has not completely evaporated, however. She noted that Bitcoin has struggled in recent weeks due to underwhelming support from President Donald Trump. During the campaign, Bitcoin analysts and investors were expecting to see a positive regulatory environment for cryptocurrencies, with Trump even talking about creating a Bitcoin Reserve.
Trump fulfilled his promise earlier this month after he signed an executive order calling for the creation of a digital currency reserve; however, the proposed reserve would only include Bitcoin that the government already held, and no new money would be spent.
Since its January highs Bitcoin prices have fallen 21%, currently trading around $86,000 per token. Meanwhile, the gold price continues to hold above $3,000 an ounce and is up 15% so far this year.
Looking beyond the short-term volatility, Gibb said that both gold and Bitcoin remain well-supported in a world full of uncertainty.
She added that what makes gold and Bitcoin attractive alternative assets is their broad market liquidity. As equity markets continue to struggle in correction territory, having liquid assets is important, she said.
“ When you're having a stress scenario, what do you want your alternatives to do? You want them to dampen the portfolio vol, but you want to be in a position where you can crystallize those gains and redeploy capital, and potentially buy your core assets when they're up and performing,” she said.
