Gold and Cryptocurrencies
Excerpted from WGC Report
How Gold’s Role in a Portfolio Differs from Cryptos
The recent rapid ascent of cryptocurrencies over the past year has captured the attention of investors. Often, investments in cryptos1 are equated to investments in gold. Despite some apparent similarities, we believe that gold stands apart from cryptocurrencies, both fundamentally and practically.
Our analysis demonstrates that gold:
- Is a tangible asset with a unique dual nature as an investment and consumer good
- Is highly liquid and less volatile
- Is a proven long-term strategic investment
- May mitigate the risks that cryptos could bring to portfolios.
Gold and cryptos are fundamentally different
The advent of blockchain and cryptocurrencies has catalysed innovation in the financial industry. Their proliferation and recent exponential price increase have captured investors’ imaginations. However, the developments in blockchain and cryptocurrencies do not imply that cryptocurrencies are a substitute for gold.
The argument that gold and cryptocurrencies such as Bitcoin2,3 are similar appears to stem from perceptions of:
- Their limited supply
- Their role as alternatives to fiat currencies.
|1||WGC uses cryptos interchangeably with cryptocurrencies through the note for stylistic purposes.|
|2||Bitcoin first appeared in the literature in late 2008 – likely due to the disenchantment many market participants had with the financial system during the Global Financial Crisis – with the open-source software released in early 2009. Bitcoin was initially viewed as a means to increase trust in transactions, reduce costs and bypass private ledgers. Since then, thousands of cryptocurrencies and, more generally, crypto assets have hit the market. While all these can vary in many ways, they are gen|
|3||Throughout this report, the WGC primarily uses Bitcoin for comparison in terms of performance and other metrics as it the cryptocurrency with the largest market capitalisation and with the longest available historical data.|
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