Bitcoin’s transformation from risk asset to digital gold hints at new all-time highs

Institutional investors and US state pensions are helping to transform Bitcoin from a risk asset to digital gold.
Institutional investors and US state pensions are helping to transform Bitcoin from a risk asset to digital gold.

Bitcoin (BTC) rallied 6% on July 26 as it flirted with the $68,000 resistance level. Interestingly, this movement coincided with increased buying pressure on US Treasurys, as the US 5-year yield dropped to its lowest level since March 2024. Similarly, gold, considered the world’s largest reserve asset, rose 1.4% on July 26, approaching the $2,400 mark.

US 5-year yield (left) vs. gold (right). Source: TradingView

Bitcoin’s gains might seem counterintuitive given the increased investor appetite for fixed-income securities and gold, but the answer lies in the performance of tech stocks and the real estate market.

Stalling stock market rally and weak real estate data fuel Bitcoin price

Part of the increased demand for US Treasurys can be attributed to the US personal consumption expenditure (PCE) price index, which rose 2.5% in May compared to the previous year, aligning with analysts’ expectations. The report, released on July 26, indicated that personal income increased by 0.2% from the previous month, slightly below the 0.4% market expectation. In short, the data favored interest rate cuts by the US Federal Reserve (Fed).

A shift to a less restrictive monetary policy is typically detrimental for fixed-income markets and gold, but the opposite occurred on July 26. Investors fear that the stock market is poised for a correction, making alternative assets like Bitcoin more attractive. Additionally, concerns about weak real estate market data, as high borrowing costs discourage sellers from listing their properties, are rising.

Morgan Stanley’s chief investment officer, Mike Wilson, told Yahoo Finance on July 26 that “cracks” in the bull thesis fueled by “artificial intelligence optimism” and “economic growth deteriorating” will trigger a 10% correction for the S&P 500 in the third quarter. Wilson added that the government is overspending on fiscal policy “to keep things moving along,” creating an unfavorable backdrop for stocks.

Tech has led the recent market decline, partially due to US government plans to ban the export of critical technology for artificial intelligence development, and partially due to profit-taking, as the tech sector has outperformed the S&P 500 on a rolling two-month basis by the most since 2002, according to Keith Lerner, co-chief investment officer at Truist, as reported by Yahoo Finance.

In the real estate market, the number of unsold new homes in the US South rose to its highest level in more than 18 years, driven by Florida and Texas. There were 293,000 newly built houses available for sale in the southern US in June, surpassing the previous high of 291,000 set in August 2006. "These markets are now in the process of finding the new clearing price needed to work down any excess inventory," PulteGroup CEO Ryan Marshall told Yahoo Finance.

Related: Bitcoin rebounds to $67K ahead of Trump’s speech in Nashville

Investors start to favor the Bitcoin’s ‘digital gold’ thesis

Perhaps the key factor in Bitcoin gaining momentum, even as part of the market expects a correction in the stock market index, is the recent buying movement from pension funds.

In May, details emerged about a $164 million investment in spot Bitcoin exchange-traded funds (ETFs) by the State of Wisconsin Investment Board. On July 25, the mayor of Jersey City, Steven Fulop, announced plans for the city’s pension fund to invest in spot Bitcoin ETFs. Additionally, on July 26, a US Securities and Exchange Commission filing revealed that the State of Michigan Retirement System owned $6.6 million in a spot Bitcoin ETF.

In essence, Bitcoin’s perception is gradually shifting from a risk-on asset, which would typically decline during an economic slowdown negatively impacting real estate and stock markets, to something more akin to gold—an alternative hedge against the ever-growing monetary issuance and unsustainable fiscal government debt.

While there’s no guarantee that Bitcoin can break above the current all-time high of $73,757 in 2024, the odds are becoming increasingly favorable.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.