Economic crises such as the one brought about by the Covid-19 pandemic highlight the concept of safe-haven assets, which are the ones investors turn to, moving away from other riskier assets, to maintain their assets. Traditionally, certain currencies such as the Swiss franc or precious metals have been considered as the ideal haven assets. But in recent years, the rise of cryptocurrencies like Bitcoin has led some analysts to suggest that they may be the safe haven assets of the future. In this post we are going to explain why bitcoin cannot replace the value as a refuge for gold.
The highs reached by Bitcoin in recent years have been spectacular, far exceeding the recent highs reached by gold.
That has led some analysts to raise the question of whether Bitcoin and other cryptocurrencies could replace the precious metal as a haven asset in the coming years. Much has been written for and against this thesis.
To compare both assets, the first thing to do is consider their revaluation so far this year. Gold started 2020 at $1,527.10 an ounce and on November 9 it was trading at $1,867.30 , that is, a rise of 22.28%.
In the case of Bitcoin, it was trading at $6,966 on January 2 and at 15,335 on November 9: a revaluation of 120.14%.
The absolute figures tip the balance towards Bitcoin. However, one variable must be taken into account: volatility.
While gold has been on a steady upward trajectory since the beginning of the year, the cryptocurrency has experienced rises and falls ranging from -30% to +82% above the average price.
Figures that would affect the portfolio of an investor who decided to entrust part of their money to Bitcoin and that no one, in their right mind, would want for an asset whose objective is to act as a refuge.
When it comes to investing in a refuge asset, movements such as those registered by Bitcoin cause more fear than confidence. Investors who go to a safe haven do so to protect their wealth from adverse market conditions rather than to earn money. So the main objective is to maintain security in your investments.
Advantages and disadvantages
Despite this, it cannot be denied that Bitcoin has some advantages as an investment asset. One of them is its decentralization : no bank, country or entity owns or issues it, so it is free from the pressures of any of them and the effect of economies, which gives it a certain advantage over other assets.
Although gold is also independent and does not constitute anyone’s responsibility, it is somewhat affected by the global economy and investors’ decisions move based on the state of the main economic powers.
In both cases, Bitcoin and gold are limited resources , which have a cost associated with extracting or mining them. Both are divisible into very small quantities. But there is something that gold has that Bitcoin lacks: intrinsic value.
Gold is a luxury good, a raw material known throughout the world and accepted by all, because it has its own value, attributable to a metal that has been considered wealth for tens of centuries.
On the other hand, Bitcoin lacks intrinsic value : it is only used to buy goods and services, but there are not many people who want to collect their salary in this cryptocurrency.
The conclusion reached by the FXStreet article is that while Bitcoin and gold have many similarities, there are also many differences between them:
“Gold is the main safe haven asset and that is something that is not going to change. Investors know this and appreciate gold for its great intrinsic value, which Bitcoin, however, lacks. So no, Bitcoin is not going to replace gold as a safe haven asset .
JPMorgan , one of the world’s leading investment banks, has recently pronounced in this sense . In one of its publications aimed at investors, ‘Flows & Liquidity’ , the entity’s analysts point out that it is more appropriate to classify Bitcoin as a risk asset than as a refuge asset, due to the growing positive correlation, since the past month of March, of the cryptocurrency with the US stock index S&P 500 .
According to this report:
“Bitcoin’s role is more a reflection of the need for an alternative currency than a safe haven or protection asset . “
In the opinion of analysts, the market capitalization of Bitcoin would have to increase tenfold to match the private sector’s investment in gold. So it is clear: although it has qualities that may be interesting for investors at certain times, Bitcoin is not an alternative to gold as a safe haven asset.