CME Chief Economist: Bitcoin is outperforming gold as a hedging tool

Bluford Putnam, chief economist and general manager of CME Group, recently admitted that Bitcoin is competing with gold as a hedge against inflation.

“Gold appears to have a rising competitor in Bitcoin,” Bluford Putnam told Bloomberg in a video posted on YouTube on Tuesday. “Given the current price range of gold, increased production will likely be a feature of 2021.”

Gold’s supply is less defined than Bitcoin’s. Bitcoin’s code sets a cap of 21 million coins, which are dispersed into circulation on a steady mining schedule. Putnam mentioned this feature of Bitcoin in his rationale, though he also pointed out its volatility. “Note that a fixed supply does not imply reduced volatility,” he explained. “In fact, it may be quite the opposite,” he said, adding:

“When supply is relatively inelastic, dynamic supply patterns as demand changes can have very large and sudden effects on price. Bitcoin has demonstrated this.”

A store of value or hedge is generally a way to preserve value over the long term, potentially protecting against inflation and changing global economic factors. As Investopedia points out, the lack of correlation can be a key aspect of a safe haven asset.

"We also note that gold may be losing its appeal as a hedge against global political risk," Putnam said. He added: "Most of the gains and losses in gold prices between 2017 and 2020 appear to be more directly related to Fed policy changes than any other factor. As stocks respond to the same drivers, gold tends to become a little more closely correlated with stocks, weakening gold's safe-haven appeal."

Both gold and Bitcoin prices have hit all-time highs in 2020. Gold prices hit a record high in July and surpassed $2,000 an ounce in August, according to TradingView.com. Bitcoin hit an all-time high in December and doubled in the weeks that followed.

Bitcoin proponents often argue that Bitcoin is like digital gold, but with properties that make it easier to store and transport. Industry leaders have also been known to pit the two store-of-value assets against each other.

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