Bitcoin Is Not Digital Gold, Warn Analysts

Bitcoin is not as good as gold and the value of precious metals should not be overlooked by investors, warn investment experts.

In a note to investors, US fund manager Goldman Sachs has urged caution when swapping cryptocurrencies like Bitcoin for more traditional assets such as gold.

The note points out that fear and wealth protection are the reasons why gold has been such a popular investment over hundreds of years, and that those drivers are still as relevant today as they were at any other time.

“Precious metals remain a relevant asset class in modern portfolios, despite their lack of yield,” wrote the firm’s analysts.

“They are neither a historic accident or a relic.” Looking at properties such as durability and intrinsic value, they are still relevant even with new materials discovered and new assets emerging, such as cryptocurrencies.”

Bitcoin surges in value

Traditionally, investors increase their gold holdings at times of political or economic uncertainty as a store of wealth.

The note goes on to explain that while the value of Bitcoin has surged from $1,000 to around $6,000 this year, gold has also increased in price by 12% to $1,286 an ounce.

Goldman Sachs says gold beats bitcoin and other cryptocurrencies on several fronts, including:

  • Bitcoin and other online currencies are vulnerable to hacking, are unregulated and has no infrastructure to support investors during times of crisis
  • Gold is a finite asset, but cryptocurrencies are always springing up and increasing the asset base diminishes the price of those already in circulation and has no rarity value
  • Gold has much less volatility than Bitcoin, especially day to day

Regulation is the biggest risk

Bitcoin does win in terms of transportability – it’s much cheaper and easier to send Bitcoin around the world than gold bullion.

Investors have taken the Goldman Sachs note to investors as a warning that Bitcoin is not the new age gold that some analysts claim and that regulatory risks pose a real unknown concern that could impact the value.

Recently, financial regulators in China, the US and UK have warned about the risks of investing in Bitcoin and put controls on some cryptocurrency investment vehicles, like initial coin offerings.

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