One of the reasons why gold is considered as hedge to a failing economy is because of its inverse correlation with fiat money.

When investors are bearish toward currencies, gold prices rise as a result and vice versa. The traditional trend is that investors turn to gold during economic slumps. However, with Bitcoin becoming increasing popular many economists are starting to believe that the cryptocurrency could replace gold as a safe haven.

Bitcoin’s recent strides make it one of the most successful investments in history. Bitcoin prices recently surged by $2,700 in just 24 hours and hit $18,353 per coin – a feat that no other non-crypto asset was able to achieve in recent time. Its ability to outshine other assets during an economic slump is one of the reasons why some investors are saying that the cryptocurrency might replace gold as safe haven in the future.

JP Morgan Chase is one of the multinational banking companies that believe this, saying that the impending launch of Bitcoin’s futures contracts adds legitimacy and appeal to the cryptocurrency market.

Gold and Bitcoin: a Comparison

One of the most noticeable similarities between the two asset classes is how their prices surge amid an economic slump. Based on FXCM’s gold price chart, the precious yellow metal’s prices surged to $1,330 in July 2016 from a $1,250 value in June.

Amassing gold is a centuries-old response to geopolitical events, and the EU referendum vote last year was no different. Gold prices climbed immediately after the UK opted to leave the EU, as investors turned toward traditional safe haven assets. Gold’s price reached a 3-year high as Brexit worries intensified last year.

Similarly, Bitcoin is seen by some investors as a safe haven now because its prices are unaffected by currency crashes. Like gold, Bitcoin prices go up when current events make investors bearish toward currencies. The Brexit final vote is yet to come, and the GBP may slide further because of its uncertainty. As a result, some investors today are not only buying gold, but also Bitcoin.

Today, Bitcoin prices are still surging despite months-old speculations of the cryptocurrency entering a bubble. More merchants are accepting Bitcoin as a legitimate way to pay for goods and services, and the Japanese government is one of the first countries to support the cryptocurrency. Like gold, Bitcoin can now be used for trade in most countries should major currencies crash.

Skepticism Surrounding Bitcoin as a Safe Haven

Other economists, however, disagree that Bitcoin can replace gold as a safe haven asset. The strongest argument that economists have on this issue is the fact that unlike gold, Bitcoin is not a physical investment. Traditionally, an asset that cannot be used for things other than currency cannot be classified as a safe haven. Gold, apart from its use as a currency, can be used for many other things including medicine, developing modern devices, and creating jewellery.

Bitcoin’s investment status is unclear as well. According to a document provided by ARK Invest and Coinbase, it was mentioned that Bitcoin belongs to its own asset class. This means that the cryptocurrency is not officially recognized a commodity. Historically, investors turn to commodities like gold, oil, corn, wheat — physical assets that can be consumed — when currencies fail. As such, some economists say that Bitcoin should be considered as an alternative investment instead of safe haven.

With surging prices, Bitcoin is currently doing gold’s job in providing investors a hedge to an economic slump. If Bitcoin can pass the test of time as a safe haven asset for declining currencies, just like gold did in the past, economists say that more investors may consider the cryptocurrency as the precious yellow metal’s true rival.

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