Gold has historically remained the go-to investment avenue. But as the cryptocurrencies rose to their highs in 2017, people started comparing bitcoin to gold and many believed that one-day bitcoin will replace gold. Well, Morningstar analyst Kristoffer Inton differs on this. According to him, bitcoin and cryptocurrencies may rise to new highs, but it will not replace Gold as a safe investment avenue.
Gold would remain a safe-haven asset class
While a lot of compared gold to bitcoin and the debate continues, Morningstar tried to create a framework which could test and justify of comparing gold and cryptocurrencies and graded these asset class’s viability as a safe haven. In words of Inton:
In order to assess the threat, we’ve created a framework to grade any asset class’s viability as a safe haven by focusing on liquidity, functional purpose, scarcity of supply, future demand certainty, and permanence. Through this framework, we conclude that cryptocurrency does not and will not challenge gold as a safe-haven asset class.
As reported by MarketWatch, Inton said that “Through this framework, we conclude that cryptocurrency does not and will not challenge gold as a safe-haven asset class,” he continued.
The article also said if in any case cryptocurrency displaced gold’s as a safe haven investment avenue, the prices of gold will go for a toss. Quoting from the report
If cryptocurrency were to displace gold’s investment case, the implications for gold prices would be devastating. 40% of gold demand relates to investment, so a shift in investment from gold to cryptocurrency would be a seismic shock.
Gold and Bitcoin will co-exist
Gold has been an age-old safe haven investment option, but with changing times a lot of people are relying on cryptocurrencies. This trend is prominent in countries where the inflation rates are skyrocketing and the local fiats have lost value eg. Venezuela and Argentina. That has led to the comparison as both of these have proved helpful to investors, and both have been harnessed as a speculative investment at some points and a safe-haven asset at others.
While some analysts have compared these two, bitcoin and gold have important differences. These range from something as simple as tenure to the very nature of these assets themselves. One of the most striking differences between gold and bitcoin is that while the precious metal represents a physical object, bitcoin is entirely digital.
For Bitcoin, both the current and maximum supply of bitcoin are known entities. More specifically, the bitcoin protocol caps the total number of these digital currencies at 21 million, and interested parties can find out how many of these bitcoins have been mined by looking online.
When it comes to gold, no one knows how much of the precious metal is left on the planet. Miners can find gold under the surface of the earth, and it also exists in seawater. Some companies have even started working toward creating a space mining industry, which could gather precious metals from space
Gold has a far greater tenure than bitcoin, as it was first used more than 2,000 years ago. Bitcoin, on the other hand, has been in existence since the first block was mined in January 2009.
With some prominent difference between the two and with the Morningstar framework in place, it doesn’t look like Bitcoin will replace Gold. This gives a possibility that the world may get a new safe haven asset allowing bitcoin and gold to co-exist.
Will Bitcoin replace gold or will both of them co-exist? Do let us know your views on the same.