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How Portfolios Are Different Between Gold and Cryptos

Gold Over Bitcoin
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EDITOR NOTE: The gold and cryptos debate may seem critical to a lot of investors looking for a “short-the-Fed” trade but the sad truth of it all is that the scope of this debate is far too narrow to even matter at this point. The hedge that matters concerns not just the Fed but the IMF and World Economic Forum; not just monetary policy but the launch of the digital dollar. Not just the banking system but Industrial Loan Companies (ILCs for short). On April 1, there are going to be a wide number of systemic changes taking place worldwide--from your banks to the institutions calling shots in the world economy. The agenda to monitor and potentially freeze your funds under specific certain circumstances will shift to high gear--and it begins with the amended FDIC statement on your bank’s customer agreement (go check it, it’s all there!). This is The Great Reset and it’s weeks away. Bitcoin is going to be, at best, a temporary speculative hedge against your declining cash value. But it’s reliant on digital transmission--and that will likely be disrupted by the institutions implementing this massive system change. Tangibility and private access are what matters if you want to preserve your wealth. This makes non-CUSIP gold the only way to preserve any wealth above $5,000 in your bank account. Preparations have been staged. And in a matter of weeks, the difference between financial growth and financial destruction will materialize as the entire globe’s financial system has been slated for the largest Reset in world history.

The rapid ascent of cryptocurrencies over the past year has drawn 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:

  • sources of gold demand are more diverse (p.3)

  • supply and ownership of cryptocurrencies are more concentrated (p.4)

  • cryptos have mostly contributed to portfolio performance through returns but have added significant risk (pp.5-6)

  • gold is a high-quality liquid asset and portfolios with cryptos may benefit from higher allocations to gold (pp.6-7)

  • evolving regulatory frameworks may change the value proposition of cryptocurrencies (p.8).

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 recent developments in blockchain and cryptocurrencies do not imply that cryptocurrencies are a substitute for gold. 

The argument that gold and cryptocurrencies such as23 are similar appears to stem from perceptions of: 

  • their limited supply
  • their role as alternatives to fiat currencies. 

However, this comparison is simplistic and overlooks fundamental differences between gold and cryptocurrencies – not only in terms of their market dynamics but also in terms of their performance and the role they play in portfolios. 

Gold has a dual nature

The sources of demand for gold are very different from those for cryptocurrencies. For more than 2,000 years, gold has served as means of exchange and been used as a store of value.4 Gold is owned by institutional and individual investors, as well as by central banks (Figure 1). 

Figure 1: Gold’s demand is linked to investment and consumption

Composition of average annual net demand*

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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