Gold and Bitcoin in the Reform of the Global Monetary System

Recently, the global capital markets have been experiencing intense fluctuations, with various asset prices undergoing significant volatility. Although Bitcoin has followed the decline of risk assets in this round, seemingly contrary to its "twin" attribute, in the long run, the accelerated evolution of the new international monetary system will undoubtedly promote a further deepening of the relationship between Bitcoin and gold.

Looking back at history, since 1970, the price of gold has gone through three major upward cycles. The 1970s were a glorious period for gold, with prices skyrocketing by more than 17 times. Factors such as the collapse of the Bretton Woods system and the outbreak of the oil crisis fully demonstrated gold's value preservation and hedging properties. From the 1980s to the 1990s, as global inflation was brought under control and the economy returned to a growth track, gold prices entered a consolidation and downward phase.

The first decade of the 21st century witnessed a second round of price increases, with gold prices rising more than fivefold at their peak. The bursting of the internet bubble, China's accession to the WTO, the subprime mortgage crisis, the outbreak of the European debt crisis, and the developed countries' central banks implementing quantitative easing policies all contributed to this surge. After 2010, with the strengthening of the dollar and the Federal Reserve tightening monetary policy, gold entered a period of consolidation once again.

We are currently in the third round of the rising cycle, which began in 2019, and gold prices have nearly doubled to date. This round of increase can be divided into two phases: from the end of 2018 to early 2022, affected by the intensification of US-China trade frictions and the COVID-19 pandemic, countries implemented loose monetary policies, pushing gold up by about 50%; from 2022 to the present, despite the US rapidly raising interest rates to combat high inflation, gold prices have still risen over 30%.

Traditional economics holds that the price of gold is negatively correlated with real interest rates. However, this theory seems no longer applicable in the post-pandemic era, as gold has emerged with an independent market trend. The reason for this is that the true value of gold lies in its "consensus." The current trend in gold prices actually reflects feedback on the transition period of the new international monetary system, essentially strengthening the "consensus" of gold's monetary attributes.

Central banks and the private sector around the world are increasing their gold reserves to diversify against dollar risks. The net gold purchases of central banks surged from 255 tons in 2020 to 1,037 tons in 2023. In the private sector, Asia's gold ETF holdings have grown by over 30 tons since 2022, reflecting expectations of the differentiation and evolution of the international monetary system.

Bitcoin is similar to gold in many ways, such as controllable supply, decentralization, non-falsifiability, divisibility, and convenience. In January 2024, the US SEC approved the listing of the first Bitcoin ETFs, marking Bitcoin's further move towards the mainstream. In recent years, 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, with the global inflation center shifting upwards and increasing geopolitical uncertainties, gold will continue to rise. At the same time, the mainstreaming process of Bitcoin is accelerating, and its potential as a reserve currency may run parallel to gold, jointly responding to the changes in the global monetary system.