Is Bitcoin Digital Gold or a Digital Tulip?

I have trouble keeping up with the reasons why Bitcoin moves in either direction. It seemed correlated with the Nasdaq coming out of the pandemic; then was compared to “digital gold”; and recently it was a hedge against government mismanagement.

Its bull case seems to change each day and I’m not embarrassed to say that I have no idea why it goes up or down.

The comparison to “digital gold” looks fair on paper, but its price doesn’t seem to agree. As gold continues to hit new record highs after gaining 60% so far this year, Bitcoin isn’t shining so bright. A recent overlay of Bitcoin and gold bullion shows the two have entirely decoupled over the last few months and have no correlation whatsoever lately.

Over the last week, Bitcoin has lost 10% of its value. From what I can gather, the drop had something to do with new tariff threats against China, exacerbated by margin calls from leveraged bets. Yet, since Trump diluted his tariff threat over the weekend, Bitcoin is down another 2% while the S&P 500 has rallied 3% so far this week.

Obviously, the price could go a lot higher. At the peak of Tulip Mania in the 1630s, rare tulip bulbs sold for as much as 4,000-5,500 Dutch florins, which some sources equate to more than US $750,000 in today’s money.

Not only do I not know why Bitcoin’s price moves up or down, I don’t even understand what it’s used for.

JPMorganChase CEO Jamie Dimon said last year:

Blockchain is real. It’s a technology. … Cryptocurrencies have two types. There’s a cryptocurrency that might actually do something. Think of it as having an embedded spot contract and we can use it to buy and sell real estate and move data. That may have value – tokenizing things you do something with. And then there’s crypto that does nothing. I call it “the pet rock” — the Bitcoin or something like that. There are use cases: fraud, anti-money laundering, tax avoidance, and sex trafficking. Those are real use cases, and you see it being used for $50-100 billion a year for that. That is the end use case. Everything else is people trading it among themselves speculating.

All this being said, we wouldn’t buy this asset – if you can call it that – for our clients.

However, that’s just us. If you have a bull case on why Bitcoin is undervalued, perhaps it deserves a position in your portfolio. Some argue that much like central banks acquire gold bullion for their reserves, Bitcoin or other cryptocurrencies could one day also be in demand by the same buyer.

If you decide to own it, just like every other investment, keep your position to a few percentage points of your portfolio.

Through our experience, every year there’s a couple stocks that shoot the lights out and perform better than expected; a good chunk moves in the direction of the market; and there’s always one you don’t even want to look at. That’s why we diversify our client portfolios through owning several dozen stocks across many sectors.

While Bitcoin remains a fascinating experiment, its value lies in what the next speculative trader is willing to pay for it. The price may surge again or collapse further, but predicting those moves is speculation, not investing. For most portfolios, owning a diversified mix of high-quality assets will continue to do far more for long-term wealth than trying to catch the next digital tulip.

-written by Jeff Pollock