Market Overview

Gold Industry Says Cryptos Are No Substitute As Safe Haven

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Gold Industry Says Cryptos Are No Substitute As Safe Haven

As the cryptocurrency space has evolved, adopters and endorsers have tried to frame bitcoin and other digital assets as credible stores of value and potential alternatives to traditional safe-haven assets — including precious metals.

Over bitcoin's just over a decade of life, some market observers have compared the largest cryptocurrency by market value to gold, but some gold analysts see things differently.

What Happened

Bitcoin missed a golden opportunity last year to prove its chops as a safe-haven asset, the World Gold Council said in a Tuesday report. Instead, bitcoin shed approximately 80 percent of its market value and was drubbed in the fourth quarter, a period in which gold and the related exchange traded funds climbed.

“In Q4 2018, as global stock markets experienced their worst quarter since 2009, cryptocurrencies had a prime opportunity to demonstrate qualities associated with safe havens like gold,” said the WGC. “However, cryptocurrencies, such as bitcoin, behaved like risky assets and fell while gold rallied.”

In partnership with State Street, the WGC launched the SPDR Gold Shares (NYSE: GLD), the world's first gold-backed ETF, in November 2004. Today, GLD is the world's largest gold ETF, with $34.13 billion in assets under management.

Bitcoin is the only digital currency with a market value that exceeds GLD's assets under management.

Why It's Important

“Though comparisons have been made, we believe there are several reasons why cryptocurrencies are no substitute for gold,” the WGC said. “Specifically, gold is less volatile and enjoys a more liquid and established market. It has a well-understood role in an investment portfolio and minimal overlap with cryptocurrencies on many sources of demand and supply.”

As is the case with gold and other commodities, bitcoin has a futures market, but it is not yet as robust as that of gold. Bitcoin futures debuted on the CBOE and CME in late 2017, but as the value of digital currency plunged last year, futures volume dwindled.

“Finally, the market value traded in the bitcoin futures market fell sharply in the quarter at a time when volumes in global markets and gold rose,” according to the WGC. “The support of a strong two-way market was lacking, suggesting bitcoin — unlike gold — does not provide the liquidity needed in times of financial tension.”

What's Next

JPMorgan analyst John Normand said in a Bloomberg interview that gold has been a better hedge than bitcoin since July 2010, despite bitcoin often sporting low correlations to more traditional asset classes.

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