Jim Cramer Favors Gold as Bitcoin Jumps Above $54,000

Bitcoin eased into a new uptrend after briefly sliding to $49,500 earlier on Monday. Uncertainty, confusion, and losses characterized crypto markets for a few days. The instability affected gold and the stock market amid fears of a recession brewing up in the US. Meanwhile, Jim Cramer, the host of Mad Money on CNBC, has asked investors to be cautious of the ongoing crypto crash.

In his opinion, gold has the potential to perform better as an inflation hedge compared to Bitcoin, which he says could experience a short-lived bounce before continuing downstream.

Why Is Bitcoin Crashing and Jim Cramer’s Take

Global markets, including crypto, continued to bleed throughout the weekend amid fears of a recession in the US, Japan carry trades going extremely bad, and liquidations in the crypto derivatives market exploding past $1 billion on Coinglass.

A carry trade allows investors to profit from price discrepancies between markets such as the US and Japan.

An initially straightforward arbitrage opportunity escalated into a market crisis, triggering simultaneous sell-offs in the US and Japanese stock markets. As risk aversion surged, Bitcoin and other cryptocurrencies were heavily sold, resulting in a dramatic 18% price drop below $50,000.

Although Bitcoin bounced back up to exchange at $54,500 on Monday, Jim Cramer stifled any hopes of a major recovery. He added that buying the dip and expecting BTC’s price to rise may work out.

The relentless selling breeds faux explanations for selling. This feels very much like margin selling off of Japan. Still, if you buy for bounce it could be, as i tell CNBC Investing Club members, night be short lived

— Jim Cramer (@jimcramer) August 5, 2024

While Bitcoin has come to be known as the “digital gold,” Jim Cramer believed gold is a better asset, as it has “held up a lot better than crypto. After rising to July’s peak of $2,483 per ounce, gold plummeted, collecting liquidity at $2,360 support. This revitalized buyers who were determined to keep the precious metal soaring, but the uptrend snapped at $2,374.

A blend of macro factors, including the Fed’s economic policy on interest rates, carry trades between Japan and US markets, and escalating geopolitical tensions, caused gold to slash its value by 3% to $2,375 between July 31 and August 5.

On the other hand, a previous BTC price forecast revealed that the largest crypto had declined 24% in the same period to trade at $50,182 on Monday.

Nevertheless, extensive price crashes are not new to Bitcoin and gold. Following the 2020 black swan event, BTC nosedived, losing 45% of its value, but immediately recovered, leading to a rewarding year for investors and a subsequent bull run in 2021.

The high volatility and sell-off also affected gold prices, dropping by almost 15% to $1,450 per ounce before making an impressive rally to hit $2,075 in August 2020.

Bitcoin vs Gold: Which is a Better Inflation Hedge?

History shows that Bitcoin and gold are not immune to black swan events, and such drastic drops are expected. The two assets tend to recover, hitting new highs following massive corrections. More traditional investors may find gold to be a better hedge, while the BTC price remains an attractive asset for unconventional traders.