Investment Insights: 3 Reasons Why Bitcoin Isn't Like Gold

By ETF Securities US / February 09, 2018 / seekingalpha.com / Article Link

Gold has a strong track-record as a store of value by preserving spending power over long periods of time.

Gold investment is typically motivated to hedge risk while return chasing is a large impetus for bitcoin buyers.

Gold is a physical asset with demand rooted in consumer and industrial applications beyond its role in the financial system.

12Director -Investment Strategy Investment Insights January 10 , 2018 3 Reasons Why Bitcoin Isn't Like Gold Summary ?,? Gold has a strong track-record as a store of value by preserving Different Investment Motivations spending power over long periods of time. Another key distinction between gold and bitcoin is their different ?,? Gold investment is typically motivated to hedge risk while investment motivations. Bitcoin's major source of demand, aside return chasing is a large impetus for bitcoin buyers. from illicit black market activities, has come from a surge of speculative buying. This resulted in a meteoric price rise creating a ?,? Gold is a physical asset with demand rooted in consumer and industrial applications beyond its role in the financial system. return-chasing behavior. The profit-seeking rationale behind bitcoin, however, is polar opposite of the investment motivation to Not a Proven Store of Value hold gold. A critical investment benefit offered by gold is its role as a hedge against market turmoil, geopolitical volatility, and systemic Bitcoin and other cryptocurrencies' recent popularity has thrown them into the same classification with gold as a store of value. risk. Gold provides diversification through its historically low correlations with most asset classes, particularly equities. In this Bitcoin currently fails to meet the three major functions of money capacity, gold has exhibited an average return of +7% compared to (medium of exchange, unit of account, and store of value) that other reserve currencies such as the US Dollar, Euro, and Japanese a -21% average return in the S&P 500 during market drawdowns of 10% or more since 1987. These hedging and potential risk Yen provide. Gold's direct role as money (stemming from its finite mitigation characteristics showcase gold's chief investment role is supply) began over 2,500 years ago and lasted until 1973. In the rooted in risk management not capital appreciation. modern era, gold is no longer a viable medium of exchange or unit of account; however, unlike bitcoin it is still a useful store of value. Demand Beyond the Financial System Gold has exhibited an ability to preserve purchasing power over Many gold critics highlight that unlike other investments, gold is long periods by protecting against inflationary pressures including not a productive asset - it just sits in a vault. This viewpoint, rising prices as well as the devaluation of fiat currencies. This however, greatly overlooks gold's utility beyond the financial and ability to maintain wealth and value over time is a key rationale for monetary system. In fact, the majority of annual gold demand gold's continued use as a reserve asset among governments and comes from real world applications such as jewelry and electronics. central banks. Additionally, bitcoin's limited track-record and high volatility should certainly bring caution to those classifying it as a Exhibit 2: Gold demand by sector (excluding ETFs and similar) . Physical Investment Official Sector Industrial Jewelry store of value. Since 2010, bitcoin's annualized daily volatility has 100% been 15 times more volatile than the US dollar, 7 times more 90% volatile than the price of gold, and 3 times more volatile than the 23.3% 24.1% 27 .1% 28.3% 28.9% 80% price of oil, one of the most volatile commodities (see Exhibit 1). 70% 13.1% 13.2% 10.3% 9.7 % 9.0% 60% 7 .8% 7 .6% 8.5% 8.6% 8.6% Exhibit 1: Bitcoin is 7x more volatile than gold. 50% G40% Demand 140% 111% 119% 30% 55.8% 55.1% 54.1% 53.4% 53.4% 120% 20% 100% 10% 80% 0% 60% 2014 2015 2016 2017F 2018F 40% 28% 33% Source:MetalsFocus, ETFSecurities.Chart dataasof10/25/17. 14% 14% 16% 17% 21% 20% 7 % 9% 9% As a thought experiment, assume the world decided overnight that 0% gold has no intrinsic monetary value. The next day there would still Euro Gold Oil exist a demand for the physical metal for adornment as well as Annualized Daily Volatility MLPs REITsCopperlver Bitcoin US Dollar S&P 500 industrial and scientific endeavors. This would not be the case, VIX Index Japanese Yen however, for bitcoin whose only utility stems from the acceptance Source: Bloomberg, ETFSecurities. Datafrom 07/19/10 to01/10/18. and use in transactions - a role still unachieved as of today. 1 Past performance is no guarantee of future results.The statements and opinions expressed are those of the author and are as of the date of this report. All information is historical and not indicative of future results and subject to change. Reader should not assume that an investment in any securities and/or precious metals mentioned was or would be profitable in the future. This information is not a recommendation to buy or sell. Past performance does not guarantee future results. The S&P 500 Index is a capitalization-weighted index of 500 stocks selected by the Standard & Poor's Index Committee designed to represent the performance of the leading industries in the U.S. economy. Real Estate Investment Trust (REIT) is a type of security that invests in real estate through property or mortgages and often trades on major exchanges like a stock. A master limited partnership (MLP) is a type of business venture that exists in the form of a publicly traded limited partnership. The Chicago Board Options Exchange (CBOE) S&P 500 Volatility Index (VIX) shows the market's expectation of 30-day volatility. Bitcoin is a type of cryptocurrency, which is a digital or virtual currency that uses cryptography for security. The Euro is the official currency of the European Union. The Japanese Yen is the official currency of Japan. Diversification does not eliminate the risk of experiencing investment losses. Maxwell Gold is a registered representative of ALPS Distributors, Inc. ALPS Distributors, Inc. ETF001253 01/31/19 ETF Securities (US) LLC 405 Lexington Avenue t +1 844 - ETFS - BUY (844 383 7289) New York f +1 646-846-3130 NY 10174 e infoUS@etfsecurities.com United States w etfsecurities.comClick to enlargeNotes:

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