The gold-backed digital asset offered by Paxos experienced a significant increase in value over the weekend, coinciding with escalating tensions in the Middle East. This surge led some individuals to question the effectiveness of Bitcoin as a geopolitical hedge.
On April 13, the PAXG gold-backed crypto token reached a price of $2,855, while Bitcoin saw a contrasting decline from over $67,500 to a low of around $62,700 in a 7.5% daily decrease. Bob Elliott, co-founder and CEO of Unlimited Funds and former executive of Bridgewater, commented on this situation, stating that “Bitcoin may be many things, but it is not a geopolitical hedge.”
The Middle East witnessed intensified geopolitical tensions during the weekend due to an Iranian drone and missile attack on Israeli targets. Elliott, the former research head of Bridgewater Associates, further emphasized that this recent event provided a notable empirical test, as Bitcoin demonstrated a “near-perfect negative correlation over the last day to PAXG.” He went on to say, “If anything, it’s becoming an even worse hedge over time.”
Despite its initial spike, the PAXG token was unable to maintain its momentum and returned to its previous price level linked to spot gold, which stood at approximately $2,376 at the time of writing. Since the beginning of March, the asset has displayed gradual progress, rising by 20% in line with the prices of gold, which reached a peak of $2,400 per ounce last week.
However, it is worth noting that the Paxos token has limited liquidity, with a daily volume of only $36 million, in contrast to major high-cap crypto assets that trade in the billions. Glassnode on-chain analyst “Checkmatey” dismissed those who used the price increase of the illiquid gold token as a means to criticize Bitcoin, calling them “unserious market commentators.”
Elliott also highlighted Bitcoin’s similar market behavior last year following the Hamas attack on Israel on October 7, when it experienced a downward trend while gold prices rose. He further mentioned the Russian invasion of Ukraine in February 2022, which resulted in Bitcoin trading randomly within a relatively narrow range while gold prices increased by 12% during February and March of that year.
Analyst Willy Woo referenced the price action during the Russia-Ukraine conflict and noted that Bitcoin’s recovery typically occurs within a few days. Based on these observations, Elliott concluded that Bitcoin is not a reliable store of value asset from a geopolitical standpoint, and its usage may align it more closely with aggregate financial assets.
At the time of writing, Bitcoin had already begun its recovery from the weekend’s decline, reaching a price of over $65,800 in early trading on April 15.