Bitcoin and Gold Will Profit if the Dollar Weakens and Central Banks Sell US Treasuries

Bitcoin and gold are gaining traction as investors look for alternatives amid concerns about the dollar’s long-term viability.

Summary

• Bitcoin and gold are gaining popularity as investors seek alternatives amid concerns about the dollar’s long-term viability. 
• China and Japan are reducing their holdings of US Treasury notes, raising concerns about continued demand for US debt.
• The US dollar index has fallen 2.13% over the last month, while gold has risen 7.29%, reaching a record high of over $2,920 per ounce. 
• Central Bank net purchases of gold in Q4 2024 have reached the greatest level in at least 10 years, suggesting a considerable demand for gold by US investors.

According to one economist, bitcoin and gold are gaining traction as macroeconomic factors point to a probable transition away from the US dollar’s supremacy.

Over the last month, the US dollar index has fallen 2.13%, while gold has risen 7.29%, reaching a record high of more than $2,920 per ounce on Friday. Bitcoin has been more volatile over the last 30 days, climbing above $108,000 on January 20 and then down to around $97,200 today.

“Investors are gradually turning away from US treasuries and toward alternative stores of wealth like gold and bitcoin,” Bitwise European Head of Research Europe André Dragosch told The Block. “Central bank net purchases of gold in Q4 2024 have already reached the greatest level in at least 10 years, and the recent surge in COMEX gold inventories suggests a considerable demand for gold by US investors as well,” he said.

Dragosch observed that this trend has intensified since the 2022 war crisis in Ukraine and the subsequent suspension of Russian foreign assets, marking a pivotal moment in the de-dollarization process. “In this perspective, it should be highlighted that the utilization of the U.S. dollar in SWIFT transactions has grown, while the percentage of overseas reserves has fallen, signaling that the dollar is less recognized as a secure store of value,” he said.

The US Dollar’s Depreciation and Changing Investor Opinion

Dragosch also noted that the yield on the 10-year US Treasury note, which had recently peaked at 4.79%, has since fallen to 4.5%. This comes as China and Japan, the largest foreign holders of US debt, cut their exposure to Treasuries, heightening concerns about long-term demand for US government assets. “The overall picture is that U.S. Treasuries are no longer considered the safest asset, which is also reflected in the dramatic decrease in long-term U.S. Treasuries and the collapse of known correlations such as gold and U.S. real rates since 2022,” the Bitwise expert added.

Dragosch observed an increasing trend of central banks considering Bitcoin as an alternative value store. “We had an internal inquiry at Bitwise U.S. from a foreign central bank that wanted to invest sections of their U.S. Treasuries into spot bitcoin ETFs, and the Czech National Bank is also looking at this, as we know,” he added.

Meanwhile, Geoff Kendrick, Standard Chartered’s global head of digital assets analysis, stated that fears about future trade penalties under former President Donald Trump may be fading. “If oil trends down on the potential of a Russia-Ukraine peace deal and tariff fears subside, we might see risk assets, including bitcoin, rise,” Kendrick said in a note on Thursday. The Standard Chartered head of digital assets research said that if Bitcoin begins to rise, “expect a move above $102,520 shortly.”

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