Bitcoin has really stolen the limelight this year; however, Goldman Sachs say that the meteoric rise has not stifled the demand for gold.
Many investors had feared that the increasing value of Bitcoin would take the shine off gold, but Goldman Sachs say that this will not happen, as the two have very obvious differences. One example of this is that gold investors use exchange traded funds, futures or commodities indices, which are automatically covered by anti-laundering and counter-terrorist financing regulations.
Analyst Jeffrey Curries said that there is very little clarity on how trading with cryptocurrencies could be made in order to comply with the same regulations. He goes on to say that;
“This creates huge regulatory hurdles for professional investors wishing to enter these markets.”
He then added that there had been no evidence of a ‘mass exodus’ from gold – with holdings being the highest they have been since mid-2013. The market characteristics of the two are also very different. Although both do have a finite supply, Bitcoins is very mathematically set in stone, whereas there is a less certain finite supply of gold in the earth’s crust.
These experts believe that it is the recent difference in price action that is the key difference in the composition of demand between the two. It could be said that Bitcoin is attracting more speculative inflows relative to gold.
Curries stressed that Bitcoin has demonstrated much higher volatility and lower liquidity compare to gold. The market capital is $245billion for Bitcoin and $8.3 trillion for gold. He said;
“While the lack of liquidity and increased volatility may keep Bitcoin interesting, it is unlikely to convince investors looking for the kind of diversification and hedging benefits which gold has proven to possess over its long history…We firmly believe it is a commodity, as Bitcoin has no liability that ll securities have by definition.”