Bitcoins no substitute for gold investments: WGC

“Cryptocurrencies may become an established part of the financial system. But, in our view, gold is very different from cryptocurrencies,” WGC said in an investment update. It had underlined various factors, which according to WGC gives gold an edge over cryptocurrencies. 

“Gold is less volatile; has a more liquid market; trades in an established regulatory framework; has a well understood role in an investment portfolio; has little overlap with cryptocurrencies on many sources of demand and supply,” the report said. “These characteristics underpin gold’s role as a mainstream financial asset that will likely continue to resonate in today’s digital world,” it added. 

The report said: “In our view, bitcoin and cryptocurrencies more generally are not a substitute for gold. Gold is a tried and tested effective investment tool in portfolios. It has been a source of returns rivalling that of the stock market over various time horizons; it has performed well during periods of inflation; it has been a highly liquid, established market; and it has acted as an important portfolio diversifier, exemplifying negative correlation to the market during downturns.”

Cryptocurrency’s performance has, until recently, been remarkable, but its purpose as an investment seems quite different from gold, it said. “Cryptocurrencies have yet to be tested in multiple markets. Since bitcoin’s inception, the stock market has been in a low volatility, trending, bull market, with very few pullbacks. The crypto-market is young, and liquidity is scarce.” 

The report stated when gold was used to back currencies, the gold price appreciated roughly at the rate of inflation. “Since the collapse of Bretton Woods in the 1970s, gold has appreciated 10 per cent per year, on average. While its price increased rapidly in the late 1970s, its price volatility has been relatively tame over the past four decades.”