Weekend plunge shows it's premature to crown bitcoin as the new gold, Citi says

Published Tue, Apr 16 202410:00 AM EDTUpdated Tue, Apr 16 202412:36 PM EDT

Citi says it may be too early to classify bitcoin as "digital gold" despite its safe haven properties and recent correlation with the yellow metal. Many bitcoin fans regard the cryptocurrency as a digital version of gold because of its finite supply and its function as a store of value. Others disagree, due to its notorious volatility and its high correlation to stocks in 2022. Citi analyst Alex Saunders acknowledged that it has displayed both safe haven and risk asset behaviors but said the digital gold analogy isn't yet warranted. Just look at the price decline over the weekend , he said. "With most major markets closed when the events in the Middle East over the weekend became widely known, bitcoin's initial price reaction was negative, falling 10%. … In contrast, PAXG — a token tracking gold movement — was up," he pointed out in a note Tuesday. "It is too early to think of bitcoin allocations as akin to gold. Bitcoin does not yet exhibit the 'store-of-value' properties of gold, despite both being limited-supply, zero-coupon-bearing instruments." BTC.CM= XAU= 5D mountain Bitcoin vs. gold Saunders noted that bitcoin was created "in the teeth" of the global financial crisis of 2008 and that it outperformed during last year's regional banking crisis — which, he said, suggests the cryptocurrency could have a role as a hedge specifically against banking stress. Nevertheless, because bitcoin is so young, investors struggling with sizing portfolio allocations should focus more on the adoption and utility of bitcoin and its underlying blockchain technology, according to Saunders. "The analysis needs to move beyond the historical benefits to examine forward-looking return estimates, which justifies — at this stage — more emphasis on the adoption cycle and, consequently, higher return correlation to emerging technology and other early-stage investments," he said. "Adoption of the emergent blockchain technology will be key to the long-term utility of bitcoin and other cryptocurrencies," he added. "Correlations with risky assets are likely to remain and the analogies with gold are likely premature at this stage of the product lifecycle, particularly with respect to geopolitical risk." —CNBC's Michael Bloom contributed reporting.