Revisiting Those Gold, Bitcoin Comparisons


Bitcoin, the largest cryptocurrency by market value, is often compared to gold, a comparison some supporters of both assets take issue with.

One marquee for investors is that there are a number of gold-related ETF strategies, including the SPDR Gold Shares (NYSEArca: GLD), SPDR Gold MiniShares Trust (NYSEArca: GLDM) and SPDR Long Dollar Gold Trust (NYSEArca: GLDW), but there are not yet any bitcoin-backed ETFs.

While some may point out that gold demand increased due to heightened risks and a shift to safety, gold demand has been driven by both tactical and strategic investments. Periods of growth have been supportive of jewelry, technology and long-term savings. Market downturns historically have often boosted investment demand for gold. The price of competing assets such as bonds, currencies and other assets, may influence investor attitudes towards gold. Lastly, capital flows, positioning and price trends may also affect gold’s performance.

With bitcoin being a newer asset, relatively speaking, it remains to be seen if the digital currency can fill some of the voids gold can, such as inflation protection.

“Bitcoin was the first cryptocurrency developed, and it only emerged on the scene as recently as 2009. Until bitcoin has demonstrated over time that it can effectively transfer and preserve wealth, I don’t think it’s responsible to call it Gold 2.0,” said George Milling–Stanley, Vice President and Head of Gold Strategy at State Street Global Advisors, in a recent blog post.

Is There A Competition?

Gold may face headwinds from higher interest rates and continued dollar strength, but these effects could potentially be dampened as the Federal Reserve takes a more neutral stance or even implements rate cuts while other central banks move to normalize monetary policy. With the weaker economic outlook as a result of increased trade barriers, the Fed is considering cutting interest rates which would further support the gold outlook.

Of course, the factors that affect fiat money, including traditional monetary policy, are not supposed to impact digital currencies, like bitcoin. That is one of the selling points of crypto assets.

“The main similarity is that they’re both units of exchange that are not controlled by central banks,” said Milling–Stanley. “I don’t think it’s a coincidence that bitcoin’s inception started in the aftermath of the Great Recession. That is when some investors started to worry about the future of financial markets due to the unprecedented accommodative monetary decisions made by central banks to prop up global economies.”

The newness of digital assets is one of the primary factors that make the comparisons to gold, an ancient asset, difficult.

“I’ve seen no evidence that bitcoin or other cryptos have had any impact on the price of gold or on the gold market as a whole. I don’t expect it to in the future, either. Any comparisons between bitcoin and gold are simply not apples to apples,” Milling–Stanley.

For more gold investing trends, visit our gold category page.



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