Few people doubt that BTC is digital gold. Bitcoin has proven its resilience, having survived multiple crises. The world’s main cryptocurrency has recently tested historic highs while discussions about its potential place in government reserves have been initiated in various countries.

If there’s gold, there must be silver as well. In the world of cryptocurrencies, ETH is the main candidate to take the role of “silver”. What happens if BTC and ETH start trading like gold and silver in traditional markets? Let’s take a look at this scenario.

Precious metals have several demand sources, including technological and jewelry applications, as well as investment and central bank demand (gold only).

In Q3 2024, technological and jewelry demand for gold amounted to 53% of total demand. The remaining demand came from investors and central banks.

The picture is different in silver markets. Investment demand for silver is projected to account for 17% of total silver demand this year.

The difference in demand sources between gold and silver serves as the key catalyst for these assets. On the one hand, demand for silver is more stable, as technological demand is less sensitive to market sentiment and economic developments. On the other hand, moderate changes in investment demand may lead to significant moves in silver markets.

Gold is less dependent on technological demand. Investment demand plays a bigger role in gold markets compared to silver markets. Central bank demand growth has served as the key catalyst for this year’s rally in gold markets. Such demand is absent in silver markets, which is a key difference between gold and silver. As a result, gold has recently tested historical highs, while silver is down by roughly 40% from the highs that were reached back in 2011(!).

Now let’s turn to Bitcoin and Ethereum. “Technological” demand for BTC, which in crypto world means transaction demand, is limited. BTC is purchased to preserve and increase the buying power of investor’s capital.

Therefore, investment demand is the key demand source for Bitcoin. At this point, this demand does not include government reserve demand (except El Salvador), but such discussions are already underway in various countries. In this light, Bitcoin is similar to gold, where fluctuations of investment demand are the key volatility driver.

In Ethereum’s case, transaction demand is extremely important. Sure, ETH is included in many investment portfolios, but the coin's unique selling point is its practical use. Thus, Ethereum is somewhat similar to silver, which is more dependent on technological usage.

At certain moments, ETH may be more volatile compared to BTC, as it often happens in silver markets. In the long term, one of the key parts of Bitcoin’s value is that it can be ultimately included in government reserves. In this scenario, the BTC/ETH ratio will continue to grow, similar to what we have seen with the gold/silver ratio over the last ten years. Back at the peak of the silver rally in 2011, the gold/silver ratio stood at 32. Currently, the gold/silver ratio settled near the 87 level, as gold was supported by rising demand from central banks while silver lacked this key catalyst.