The Paxos gold-backed digital asset experienced a significant surge in value over the weekend, coinciding with escalating tensions in the Middle East. This prompted some to question the effectiveness of Bitcoin as a geopolitical hedge.
On April 13, the PAXG token reached $2,855, while Bitcoin prices plummeted by $5,000 within hours, dropping from over $67,500 to around $62,700 in a daily decline of 7.5%, according to CoinGecko data.
Bob Elliott, co-founder and CEO of Unlimited Funds and former executive of Bridgewater, expressed doubt about Bitcoin’s role as a geopolitical hedge. In a post on X, he stated, “Bitcoin may be many things, but it is not a geopolitical hedge.”
Geopolitical tensions in the Middle East intensified over the weekend following an Iranian drone and missile attack on Israeli targets. Elliott, the former research head at Bridgewater Associates, added that this weekend served as another empirical test, as Bitcoin exhibited a “near-perfect negative correlation over the last day to PAXG.”
He further exclaimed, “If anything, it’s becoming an even worse hedge over time.”
However, the PAXG token was unable to maintain its momentum and retreated to its previous price level linked to spot gold, which was approximately $2,376 at the time of writing.
Since the beginning of March, the asset has shown gradual progress, rising 20% alongside the prices of gold, which reached a peak of $2,400 per ounce last week.
Nevertheless, it has been noted that the Paxos token has limited liquidity, with a daily volume of only $36 million compared to major high-cap crypto assets that trade in the billions.
Glassnode on-chain analyst “Checkmatey” criticized those who used the price increase of an illiquid gold token to criticize Bitcoin, calling them “unserious market commentators.”
Elliott also pointed out that Bitcoin demonstrated similar market behavior last year following the Hamas attack on Israel on October 7, while gold prices increased. He added, “These correlations appear to be becoming more negative over time,” citing the Russian invasion of Ukraine in February 2022.
During the invasion, Bitcoin traded randomly within a relatively tight range, while gold prices rose by 12% throughout February and March that year.
Analyst Willy Woo also mentioned the price action during the Russia-Ukraine war, stating that Bitcoin’s recovery happened within days.
Elliott concluded that, from a geopolitical perspective, Bitcoin is not a reliable store of value asset, and its broader usage may link it more closely to aggregate financial assets.
At the time of writing, Bitcoin had already begun its recovery from the weekend slump, reaching over $65,800 in early trading on April 15.