Gold or Tech?

Phase 1 – High Beta Tech

Cryptocurrencies -  and in particular Bitcoin - have acted more like high-beta tech stocks rather than gold, at least that was the case in the early days of crypto markets. There are several historical reasons why most crypto assets have such a volatile nature where crypto prices can drop by 50% in a couple of days and then recover. This was quite prevalent during the Covid pandemic, where prices fell at the beginning of the pandemic by 30% only to recover and reach an all-time high at the time of $19,900 in November 2020, which kickstarted a boom for 2021, where prices reached a record at the time $58,763.[1] [2] [3] [4]Everything looked positive at the begging of 2022, until the famous FTX exchange collapse [5][6], which pushed crypto assets into the notorious “Crypto Winter”.[7] [8]Bitcoin plunged to$16,537 in December 2022. The main factors that drive crypto are momentum and speculation. When the Fed started tightening its financial policy and odds of a recession were high in 2022 these assets suffered greatly.[9][10] This would indicate that it is very risky to count Bitcoin and other similar currencies as “digital gold” given their volatile nature. For reference gold preserved its value during the same period and even increased.

Phase 2 - Crypto as digital gold – is it possible?

Still crypto does offer diversification benefits as it has very low correlation with traditional equity and fixed income markets, and from that perspective it is a very attractive diversification asset.

Bitcoin has sometimes been likened to digital gold due to its supply limit of 21 million coins[11], and its consistent market increases over the last decade. However, people tend to forget that the huge spikes have also had large downturns.

To give an example from a historical context during the 2023 US regional banking crisis gold and Bitcoin’s correlation jumped to 0.85 in Mar 2023 and even reached 0.99 in May 2023 before finally moving in the opposite direction.[12]

This shows that in certain circumstances Bitcoin could behave like digital gold, that is when people fear that inflationary pressures are too high non-traditional assets become attractive to preserve value but for very limited periods of time.  This has happened in countries like Turkey, where people to protect their wealth started pouring their savings in crypto, albeit that was more of the younger generation.

Crypto as a reserve currency

The status of crypto as a reserve currency is still largely unexplored. Some countries like El Salvador were at the forefront of attempting to use it as such but after 4 years and despite having close $550 million (15% of their reserves) in Bitcoin, the country had to be bailed out by the IMF, which provided the country with $1.4 billion. [13] [14] [15] [16] [17][18]

In addition, a study published by the World Bank published a study as to why cryptocurrencies might fall short of being used in a traditional reserve currency. [19]

Firstly, liquidity is a major concern as central banks want to be quickly able to turn reserves into cash in volatile scenarios. Trading volumes for crypto assets are still lower as more established asset classes, and they remain extremely volatile and influenced by market sentiment. This was the case when FTX collapsed and crypto prices became depressed for a significant time. [20]

Secondly, safety is also a point of concern as traditional reserves can preserve their value under extreme shocks. Crypto assets are still extremely volatile, and their prices are subject to wild swings as we have pointed out in our first portion of the article.

There is also another point of consideration, which has not been explored in the World Bank article, namely cyber security. Every year billions of crypto assets are stolen. To date in 2025 $2.17 billion has been stolen, which is even higher than the previous year, according to data from Chainalysis. [21] [22]

Using the latest data from the IMF it is evident that the global reserve currency preferences are firmly in the US dollar court (close to 60%), followed by the euro at 20%. [23]

 [24] [25]                             

 [26]

US strategic reserve

Still crypto is not without its benefits and the USA is pushing with establishing some exposure via its strategic reserve, however it is still early to determine how viable and practical that would be to implement. [27] [28] In fact, the USA wants to establish two custodial accounts, one only for Bitcoin “Strategic Bitcoin reserve” and the “United States Digital Asset Stockpile” for other crypto assets under the administration of the Department of Treasury. No sale would be permitted under this provision. [29]  [30] However, most of these holdings have been the result of seizures of proceeds from criminal activities rather than strategic buying.

 [31]

[32]

Final Thoughts

Cryptocurrencies today still behave very much like a very speculative and volatile assets than a true safe haven. In times of market stress, it could act as digital gold but only briefly. Will they even evolve to become viable reserve currencies? In my view, it is possible, but only when crypto assets provide price stability, low volatility, sufficient liquidity, and are not prone to extreme fluctuations under market stresses. Only when such criteria are would governments, and central banks consider diversifying their reserve currencies outside traditional and more established channels.