Digital Gold: A Story Still Being Written

August put a small dent in what remains a longer-term uptrend for digital assets. Bitcoin fell about 6.5% — its first monthly decline since March — after briefly touching a new all-time high of $125,000 mid-month. Ether, by contrast, extended its strong run, gaining nearly 19% and lifting its share of overall market capitalization to roughly 13%. This rotation from bitcoin into ether was also visible in ETFs: bitcoin funds saw rare net outflows, suggesting some profit-taking after this year’s extraordinary rally, while ether ETFs attracted heavy inflows that pushed assets under management to record levels. As a result, bitcoin dominance slipped to its lowest point since January, leaving the overall market capitalization of digital assets roughly flat on the month.

Despite this sideways performance, market activity remained elevated. Spot trading volumes held above their twelve-month average — unusual for the typically quiet summer season — and derivatives markets were just as lively. Open interest in bitcoin and ether options reached new highs, and August set a record for BTC option trading volumes at $145 billion. Implied volatility stayed relatively subdued but did tick up toward month-end, hinting that the options market may be underestimating risk.

While bitcoin paused, gold was on a tear. A perfect storm of falling rate expectations, persistent core inflation, widening trade deficits, a weaker dollar, geopolitical risks and mounting political uncertainty propelled the yellow metal to successive record highs. The dismissal of Fed Governor Lisa Cook by the Trump administration further stirred concerns over the long-term independence of the Federal Reserve. Treasury yields hardly budged, but gold — as a traditional hedge against inflation and systemic risk — jumped sharply. Bitcoin, however, traded lower on the day the news broke.

This raises the perennial question of whether bitcoin truly deserves the label “digital gold.” Its scarcity and libertarian origins support the analogy, but the data tells a more nuanced story. Short-term correlations between bitcoin and gold have been inconsistent, oscillating around 12% and 16% on both 30- and 90-day windows. Over longer horizons (180d), the average correlation is slightly higher, but still low. In other words, the two assets have not reliably moved together. However, since 2024, the average 180-day rolling correlation has shown a meaningful uptick to around 60%. The effect is visible on shorter horizons as well, though less pronounced. One reasonable interpretation is that the ‘digital gold’ narrative is beginning to gain firmer footing with investors as the asset class matures.

It is also worth remembering that gold itself has an imperfect track record as a macro and inflation hedge. It does not track consumer prices month by month, though over decades it has preserved purchasing power better than most assets. Research also shows that gold can serve as a safe haven during episodes of extreme equity stress, but not always, as its mixed relationship with the VIX illustrates.

For bitcoin, the narrative is still in flux. Some investors view it as a technology play; others see it as an emerging macro hedge. We believe the latter will prove more durable over time. Unlike other blockchains, Bitcoin’s limited scalability, rigid governance and lack of Turing completeness mean it is unlikely to become a multi-application platform. Other protocols are far better suited to that role. Instead, bitcoin’s long-term value proposition rests on its scarcity and neutrality— features that echo gold’s monetary role.

Of course, such narratives take time to solidify. Gold required millennia to become widely accepted as a store of value. Bitcoin, by comparison, is only sixteen years old, yet it has already achieved remarkable levels of recognition and adoption. The “digital gold” analogy may not be fully supported by the data today, but it is far too early to dismiss it. If anything, history suggests that the story is still being written.

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