Gold Bitcoin Twins: Evolution of Reserve Assets under the New International Monetary System

Recently, the global Capital Market has experienced significant Fluctuation. The appreciation of the yen has triggered changes in carry trades, the VIX index has soared, and even gold has seen a slight pullback due to Liquidity issues, while Bitcoin has fallen alongside risk assets. This seems to contradict the discussion of the "twin" attributes, but we still believe that with the accelerated evolution of the new International Monetary System, the twin relationship between Bitcoin and gold will become closer.

Looking back at the history of gold prices, there have been three main rising cycles since 1970. The 1970s was the real "golden era," with a maximum increase of over 17 times, mainly influenced by the collapse of the Bretton Woods system and the oil crisis. After the 1980s, it entered a period of consolidation, and in the 1990s it weakened, corresponding to global inflation being brought under control and economic growth recovering.

The first decade of the 21st century was the second round of the rising cycle, with the maximum increase exceeding 5 times. During this period, the internet bubble burst, China's accession to the WTO triggered inflation expectations, and most importantly, the subprime mortgage crisis and the European debt crisis broke out, prompting developed countries' central banks to initiate quantitative easing policies. After 2010, with the strengthening of the US dollar and the reduction of QE and interest rate hikes by the United States, gold entered a consolidation phase again.

Currently, we are in the third round of the rising cycle, which began in 2019, with an increase of nearly 1 time so far. This round of increase can be divided into two stages: from the end of 2018 to the beginning of 2022, affected by the Sino-US trade friction and the pandemic, gold rose by about 50%; from 2022 to now, despite the rapid interest rate hikes in the United States, gold prices have still risen by more than 30%.

Traditional economics holds that the price of gold is negatively correlated with real interest rates, but this framework is no longer applicable in the post-pandemic era. The true value of gold lies in "consensus," and its monetary attributes are strengthening, becoming a defensive diversification strategy against the dollar credit system. Central banks and the private sector around the world are increasing their gold reserves to respond to changes in the International Monetary System.

Bitcoin shares many similarities with gold, such as scarcity, decentralization, and forgery resistance. With the SEC approving the first Bitcoin ETFs, Bitcoin is further moving towards the mainstream. Recently, the positive correlation between Bitcoin and gold prices has significantly increased, possibly transitioning from a high-risk asset to a "commodity currency."

The future International Monetary System will enter a new phase, with a clear trend towards diversification of reserve currencies. Against the backdrop of rising global inflation and increasing geopolitical uncertainties, gold remains in an upward cycle. It is worth noting that the diversification of reserve currencies is happening not only at the national level, but the private sector is also participating in this process. As the mainstreaming of Bitcoin accelerates, its value as a reserve currency is likely to keep pace with gold.