The Conversation (0)
Well-known investment bank Goldman Sachs thinks gold is better than bitcoin, and recently gave three reasons why. Here they are.
Bitcoin, the world’s most popular cryptocurrency, has outperformed gold since the start of the year.
Overall, bitcoin has surged more than 460 percent since January, breaking the $5,300 mark for a new all-time high last week. Meanwhile, the gold price has increased only about 12 percent since the beginning of the year.
As a result, many market participants have been wondering if bitcoin is the new gold. But according to Goldman Sachs (NYSE:GS), gold will remain a relevant asset despite the rise of cryptocurrencies.
“Precious metals remain a relevant asset class in modern portfolios, despite their lack of yield,” analysts including Jeffrey Currie and Michael Hinds wrote. “They are neither a historic accident or a relic.”
They believe that gold wins over cryptocurrencies in three out of four categories when assessed using the key characteristics of money. Here’s an overview of those four categories and where Goldman Sachs believes the precious metal wins out.
1. Durability
Goldman Sachs says that while both bitcoin and gold require expertise for correct long-term storage, gold wins because cryptocurrencies are vulnerable to hacking through online wallets or users’ computers or smartphones. Cryptocurrencies are also subject to regulatory risks, and network and infrastructure risks during a crisis.
2. Intrinsic value
There’s a limited supply of gold and other precious metals in the Earth’s crust. Meanwhile, in the case of cryptocurrencies, it’s easy to create alternatives. That means there’s effectively no control over supply at a macroeconomic level, and no intrinsic value due to rarity.
3. Unit of account
Gold is better at holding its purchasing power, and has much lower daily volatility. Bitcoin/dollar volatility has averaged almost seven times that of gold in 2017, the bank said.
4. Portability
While Goldman Sachs sees gold as superior in the three categories above, it acknowledges that bitcoin takes the cake in terms of portability. Transferring bullion can be expensive given its weight, the need for a high level of security and high import taxes in some countries, such as India. In contrast, it’s much faster and cheaper to move bitcoin.
Don’t forget to follow us @INN_Resource for real-time news updates.
Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
