08.01.2021
After smashing multiple records in recent weeks, Bitcoin is on track to become the gold of the future, investment experts say. But the precious metal, which could hit record prices this year, won't dull so easily.
2020 was a red-banner year for Bitcoin, the world's biggest cryptocurrency. A week into 2021, its price topped $37,000 (€30,265), more than quadrupling its value in the past year. In recent weeks, the Grayscale Bitcoin Trust gained over $3 billion (€2.45 billion), according to a note published Tuesday by investment bank JPMorgan. Gold, meanwhile, saw some $7 billion in outflows.
"Bitcoin's competition with gold has already started in our mind," the JPMorgan strategists wrote.
"Considering how big the financial investment into gold is, a crowding out of gold as an 'alternative' currency implies big upside for Bitcoin over the long term," they said.
So is Bitcoin the new gold? The answer is complicated, especially after a gold rally earlier this week. Value of the precious metal climbed to over $1,900 an ounce on Monday, the highest price in almost two months. At the same time, the cryptocurrency has continued to fluctuate.
Since the outbreak of the coronavirus, governments and central banks have pumped billions in stimulus into their pandemic-ravaged economies. This has drawn investors toward both gold and the cryptocurrency as they seek investments safe from potential inflation.
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Bitcoin's coming of age
For fans of gold as an investment, its allure is obvious. The precious metal's real-world application is visible all around us in the form of coins, jewelry and other decorative items, and it has a long history to back it up. Bitcoin skeptics have repeatedly pointed to the cryptocurrency's lack of inherent value as one of its biggest weaknesses.
Gold is a versatile and unchanging asset that many investors view as less risky than stocks, for instance. The price of Bitcoin would need to increase fivefold — to $146,000 a coin — to match the $575 billion global valuation of private gold wealth held in gold bars, coins or exchange-traded funds, JPMorgan said.
"Anything ultimately becomes a store of value because everyone agrees it to be so," Joseph Edwards, head of Research at Enigma Securities told DW. "Millennials and Gen-Z look at Bitcoin, see something that has gone a decade, has held up technically, has kept bouncing back from all market-related shocks to it, and are duly enamored."
A December survey from international financial advisory deVere Group showed that over two-thirds of the company's millennial clients felt Bitcoin was preferable to gold as a safe-haven asset.
"Bitcoin could be dethroned within a generation as millennials and younger investors, who are so-called 'digital natives,' believe it competes better against gold as a safe haven asset," wrote deVere Group CEO Nigel Green.
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It's 'not going away'
While Bitcoin always had some of the properties of money, like being portable and divisible, it has taken time, Edwards says, for it to show it has other qualities, like durability. It took 12 years, but the cryptocurrency has shown it is durable, both "in terms of the network being invulnerable to attack, and in a broader sense, in terms of Bitcoin just not going away," he said.
Analyst for online brokerage ThinkMarkets Fawad Razaqzada agrees with the characterization of Bitcoin as "millennials' gold."
"After all, its supply is fixed, and there is growing demand for it, the true definition of something precious," he told DW.
"Bitcoin is benefiting from a steady wave of institutional interest," said Edward Moya, senior Market Analyst at trading group Oanda, "which is accelerating mainstream acceptance."
In 2020, the ability to buy fractions of one whole unit of Bitcoin opened the cryptocurrency up to a broader public, and payments services company PayPal made it possible for account holders to complete online transactions with the cryptocurrency.
Skepticism around Bitcoin's future remains strong. Still, says Moya, "no one wants to get in the way of the many billionaires that are throwing on huge positions."
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Many predict Bitcoin's price will course-correct in the coming months, with investors selling while prices are high. And Moya and others still expect a strong year ahead for gold.
"Gold could see a tentative pullback, but should have a clear path higher for the rest of the year," he told DW. "Gold will likely benefit from safe-haven flows as the current winter COVID surge will force governments to deliver more restrictive measures."
Razaqzada expects record highs for the yellow metal, pointing to an "ongoing growth in supply of cheap central bank money."
"What's more, jewelry demand for gold should pick up as the world economy recovers from the pandemic over time," he said.
Liquidity is the key
It's clear that gold has been around too long to disappear anytime soon. But in this case, the past may be less important than what's to come.
"Despite the horrors of the last year, the trend is inexorably towards the boundaries of time and geography becoming ever smaller in practice," said Edwards. "We no longer live in a world where we feel comfortable being illiquid … Bitcoin is now the most liquid asset on the planet."
For this reason, other cryptocurrencies, like runner-up Ethereum, are also likely to grow in popularity and value. Several central banks are also making progress in developing digital currencies of their own.
"Does [Bitcoin] have the longevity of gold? Of course not, but that doesn't matter," Edwards said. "The modern internet — everything we use, everything we see — is, in reality, maybe 15 years old, 20 at tops, and nobody can think of a world where the internet goes away at this point. 12 years of Bitcoin might as well be 120 years in most other eras of human history."
Kristie Pladson