The Symbiotic Relationship between Bitcoin and Gold: The Evolution of the New International Monetary System

Recently, the global capital markets have experienced significant fluctuations, and various assets have been affected to different degrees. Although the price of Bitcoin has temporarily followed the decline of risk assets, in the long run, the evolution of the new International Monetary System will further strengthen the symbiotic relationship between Bitcoin and gold.

Looking back at the historical trends of gold prices, there have been three main cycles of increases since 1970. The first round occurred in the 1970s, after the breakdown of the Bretton Woods system, where gold prices rose by more than 17 times at their peak. From the 1980s to the 1990s, as global inflation was brought under control and economic growth resumed, gold prices entered a phase of consolidation and decline.

In the early 21st century, the second round of price increases arrived, with gold prices rising by more than 5 times at their peak. This round of increases was driven by multiple factors, including the bursting of the internet bubble, China's accession to the WTO, the outbreak of the financial crisis, and the initiation of quantitative easing policies by central banks around the world. After 2010, as the US dollar strengthened again and the US began to taper QE and raise interest rates, gold entered another period of consolidation.

Currently, we are in the third round of the upward cycle, which began in 2019 and has seen an increase of nearly 1 time so far. This round of increase can be divided into two phases: from the end of 2018 to the beginning of 2022, affected by intensified trade frictions and the pandemic, various countries adopted loose monetary policies, pushing gold prices up by about 50%; from 2022 to now, despite the rise in real interest rates due to rate hikes in the United States, gold prices have still risen by more than 30%.

Traditional economics holds that the price of gold is negatively correlated with real interest rates. However, this theory seems to no longer apply in the post-pandemic era. The price of gold has deviated from the pricing framework of real interest rates, reflecting more the expectations during the transition period of the new International Monetary System, as well as the strengthening of the "consensus" on the monetary attributes of gold.

Central banks and the private sector worldwide are increasing their gold reserves to diversify against dollar risks. From 2020 to 2023, net purchases of gold by global central banks surged from 255 tons to 1,037 tons. The holdings of gold ETFs in Asia have also seen significant growth, reflecting expectations of differentiation and evolution in the International Monetary System.

Bitcoin and gold are similar in many attributes, such as scarcity, decentralization, non-falsifiability, divisibility, and convenience. With the U.S. SEC approving the first Bitcoin ETFs, Bitcoin is further moving toward mainstream adoption. Recently, the positive correlation between Bitcoin and gold prices has significantly increased, suggesting that it may be transitioning from a high-risk asset to a "commodity currency."

The future International Monetary System will enter a new stage, with a clear trend towards the diversification of reserve currencies. Before the new system is officially established, gold will remain in an upward cycle. It is worth noting that the diversification of reserve currencies is not only occurring at the national level; the private sector is also actively participating in this process. As the mainstreaming of Bitcoin accelerates, its value as a reserve currency is likely to run parallel to gold, collectively responding to changes in the global economic landscape.