We often get asked about cryptocurrencies and whether they represent a potential replacement for gold, as well as what role, if any, bitcoin should play in a portfolio. We have written on this topic in these papers: Cryptocurrencies are no substitute for gold, and Cryptocurrencies are not a safe-haven.
Although cryptocurrencies and blockchain technology look promising as a whole, they clearly do not represent a substitute for gold either in theory or in practice.
The reasons gold is very different from cryptocurrencies:
- is less volatile
- has a more liquid market
- trades in an established regulatory framework
- has a well understood role in an investment portfolio
- has little overlap with cryptocurrencies on many sources of demand and supply
- is a safe-haven investment.
- Cryptocurrencies extreme daily and intraday volatility disrupts its use as a medium of exchange and discourages strategic investments
- Gold’s volatility is slightly above the stock market as a whole, in line with most fiat currencies over time.