Joe Foster, Portfolio manager and strategy strategist Gold and precious metals From VanEck analyzing Below Possibilities for a “coexistence” between gold and Bitcoin In the context of the current market.
Demand for jewelry in China and India has started again
Rising Asian demand should support gold’s performance. China and India are by far the largest consumers of gold in the world. In Asia, the demand for jewelry is price sensitive, which means that it usually increases when the price of gold is low. In India and China, gold demand is showing signs of recovery after the 2020 disaster World Gold Council e ReutersIndia’s imports of gold rose 45% and 72%, respectively, in December and January. Focus on minerals He explains that in the last quarter of 2020, sales of Chinese jewelry in yuan returned to normal levels and that in the first quarter of 2021 also the quantities appear to have normalized.
Bitcoin, a more mature asset class, albeit under scrutiny
However, today more than ever, Compare gold to Bitcoin On the agenda. Some interesting developments regarding cryptocurrency show that its use is widespread. Historically, Bitcoin has turned into the retail world as a means of payment for use in transactions and as an investment tool. But in the past year, Bitcoin has made great strides in the corporate world. The long list of members includes corporations, high net worth individuals, endowment funds, and investment funds. Bitcoin is traded on the futures market on the Chicago Mercantile Exchange and as a $ 38 billion NASDAQ-listed trust fund (at the end of March). According to Bloomberg, several major depository banks have announced plans to service bitcoins. In March, Citibank released a full 100+ page Bitcoin report. It appears this cryptocurrency can no longer be dismissed as a passing fad or technological curiosity. Although Bitcoin is more volatile than gold and gold stocks, the volatility profile is stabilizing, which is a sign that this speculative asset class is becoming more mature.
However, there are still important logistical problems for Bitcoin, including the low speed and cost of transactions, the treatment granted to it by regulators, any non-acceptance by some governments, the method of taxes, guarantees, and insurance, and how to prevent cyber attacks and illegal activities. Bitcoin is a highly volatile new asset class and also, according to a report by the Cambridge Center for Alternative Finance, has a carbon footprint equivalent to that in New Zealand. Assuming that these problems fade over time, what is Bitcoin’s place in the investment world and what is its impact on gold?
The debate continues over gold and Bitcoin
Bitcoin’s greatest potential is to become a global, decentralized and alternative cash payment system. Many investors believe that Bitcoin is a store of value. It can definitely provide a hedge against currency depreciation. The reason investors pay gold for bitcoin and not other cryptocurrencies lies in their common characteristics. Both have limited supply, are outside the traditional financial system, are not burdened with counterparty liabilities, and are unencumbered assets that have been used as commercial currencies. The anti-establishment ethic that characterizes Bitcoin users is similar to the mistrust of many gold investors in the financial system. But there are also deep differences. Bitcoin is not a physical asset. Like paper money, it only has value for as long as the public believes it is. Without the trust of the public, it is worth nothing. The gold is real. It is used in the electronics industry, medicine and the aerospace industry. Millions of people around the world wear it every day. Its utility goes beyond its function as a store of value and is rooted in the culture and history of humankind.
Today’s context favors the coexistence of gold and Bitcoin
One of the many legacies of the Renaissance was a new system of payment and value storage. In the fourteenth century, private family banks emerged in northern Italy that relied not so much on gold and silver for their own operations, but on paperwork that represented these assets. These “banknotes” were a type of paper money that helped overcome the problem of insufficient stock of gold and silver and allowed for a greater circulation of cash between merchants. The system failed when governments crushed their heavy debt and decided to cancel the bills. Investment banks flourished in the fifteenth century under the leadership of the largest banking family in Florence, the Medici family, who were the first to create written withdrawal documents (also known as checks) to increase the speed and flexibility of the banking system (History of Money, Weatherford, 1997). Perhaps in the Renaissance, as now, some called for an end to gold as a reserve of ancient wealth. But since then, gold and paper money have entrenched a peaceful coexistence.
Interest rates have been dropping for 40 years. We are entering a post-pandemic era where rates can only rise. There is a real possibility of an inflationary spiral. Investment strategies that have succeeded in the past 40 years may not work well for the foreseeable future. This climate of risk and uncertainty in which investments move in favors both gold and Bitcoin. Bitcoin may take some investors away from the gold market marginally, but it is also likely to attract new investors to the safe haven where gold and silver play an entrenched role. Perhaps gold will be given a new job, namely, to stabilize volatile cryptocurrency money. However, this is not a world in which gold is set against Bitcoin. It is the world of gold and bitcoin, where both can coexist.