In a recent interview, Federal Reserve Chairman Jerome Powell likened Bitcoin to gold, describing it as a speculative asset rather than a competitor to the U.S. dollar. Following Powell’s comments, Bitcoin saw an impressive surge, climbing to over $100,000. At the New York Times DealBook Summit, Powell indicated that the increase in Bitcoin’s price did not represent a diminishing faith in the dollar or the broader Federal Reserve system. He emphasized that people view Bitcoin primarily as an investment, akin to gold but in a virtual form, highlighting its volatility and lack of widespread acceptance as a payment method or stable store of value.
Powell pointed out that while both Bitcoin and gold have had strong years—Bitcoin experiencing a remarkable rise of 133.87% in 2023, and gold appreciating over 28%—the two assets operate in fundamentally different ways. Bitcoin has been characterized by fluctuations since its inception in 2009, with significant price movements demonstrating both its potential and peril as a financial asset. Notably, Bitcoin reached $1,000 in 2013, nearly $20,000 in 2017, and over $60,000 in 2021, only to experience major corrections, highlighting its speculative nature. While Bitcoin’s volatility has begun to stabilize as the market matures, it remains a far more unstable asset than gold, which is traditionally viewed as a reliable store of value.
Despite Powell’s assertion that Bitcoin functions similarly to gold, a closer analysis reveals critical differences. Gold is not considered a speculative asset but rather is seen as a safeguard during economic uncertainty. During market downturns, such as in 2018 when Bitcoin fell significantly, gold retained its value, underscoring its role as a safe-haven asset. According to research, Bitcoin tends to have negligible correlation with gold over the long term; thus, the two assets cannot be easily categorized as the same in terms of function or reliability.
Powell’s classification of Bitcoin alongside gold to frame their relationship with the dollar presents inconsistencies. Gold has historically acted as money for thousands of years and serves as a direct competitor to fiat currencies, including the U.S. dollar. The ongoing rise in central bank reserves of gold—694 tons purchased year-to-date—contrasts with the declining role of dollars in reserve assets. This trend underscores gold’s position as a more stable asset compared to the dollar and suggests that it does, indeed, compete directly with fiat currencies.
In some aspects, Bitcoin can also function as money. It can be quickly traded and, unlike government-issued currency, it cannot be easily inflated through excessive printing. This attribute aligns Bitcoin and gold in their ability to maintain value by virtue of their scarcity, which fundamentally differs from the central bank’s capacity to create dollars on demand. Powell’s statements seem to overlook this significant overlapping feature and its implications for the dollar’s value, especially as the Fed engages in extensive money creation to support government spending.
Ultimately, Powell’s remarks may reflect a desire to downplay the ascending competition from both Bitcoin and gold against the traditional monetary system. While they may share some characteristics, Bitcoin and gold serve different purposes in investment and financial security. Bitcoin’s speculative nature and volatility stand in stark contrast to gold’s established reputation as a safe haven. Thus, to dismiss the role of both as competitors to the dollar may overlook the economic dynamics at play and the potential ramifications for the financial stability of fiat currencies moving forward.