Bitcoin not a Replacement for Gold (Yet)
For all the talk that bitcoin is “digital gold” it seems that there is little evidence that it is taking over from the precious metal. Gold prices may have been falling recently, hitting a six month low in the last few days, but according to the global head of commodities research for Goldman Sachs, bitcoin has nothing to do with it.
Strong demand for gold ETFs
In research put out this week, Jeffrey Currie said there was “no evidence” that demand for gold had been impacted by the rise of bitcoin. Investors often use Exchange-Traded Funds (ETFs) to get exposure to gold without having to physically keep it. ETF holdings are at their highest level since mid-2013 and up 12% in 2017.
Currie argued that gold and bitcoin are just too different to be seen as competitors. Anyone investing in a gold ETF is covered by the regulations governing anti-money laundering and counter-terrorism. Until bitcoin can offer this, for instance through an ETF, if one ever appears, institutional investors will have no easy route to bitcoin exposure.
While gold is generally viewed as a safe haven for investors looking to hedge against risk, Currie believes that bitcoin’s price is propelled by speculation. The cryptocurrency is just too volatile at the moment to appeal to the general investor looking to diversify their portfolio.
We believe the composition of demand between bitcoin and gold is the key difference in the recent price action. In our view bitcoin is attracting more speculative inflows relative to gold.”
However, he said that its volatility “may keep bitcoin interesting” from an investment perspective. This “wait and see approach” echoes that of his boss, Goldman Sachs CEO Lloyd Blankfein, who said recently that once bitcoin was more like a regular asset they would “get to it”.