Gold and cryptocurrencies

Sectors: Investment

Published 2 February, 2021; revised 5 February 2021

How gold’s role in a portfolio differs from cryptocurrencies

The rapid ascent of cryptocurrencies over the past year has drawn the attention of investors. Often, investments in cryptocurrencies1 are equated to investments in gold. Despite some apparent similarities, we believe that gold and cryptocurrencies stands apart fundamentally and practically. 

Our analysis demonstrates that:

  • sources of gold demand are more diverse (p.3)

  • supply and ownership of cryptocurrencies are more concentrated (p.4)

  • cryptos have mostly contributed to portfolio performance through returns but have added significant risk (pp.5-6)

  • gold is a high-quality liquid asset and portfolios with cryptocurrencies may benefit from higher allocations to gold (pp.6-7)

  • evolving regulatory frameworks may change the value proposition of cryptocurrencies (p.8).

Gold and cryptocurrencies are fundamentally different

The advent of blockchain and cryptocurrencies has catalysed innovation in the financial industry. Their proliferation and recent exponential price increase have captured investors’ imaginations. However, the recent developments in blockchain and cryptocurrencies do not imply that cryptocurrencies are a substitute for gold. 

The argument that gold and cryptocurrencies such as2, 3 are similar appears to stem from perceptions of: 

  • their limited supply
  • their role as alternatives to fiat currencies. 

However, this comparison is simplistic and overlooks fundamental differences between gold and cryptocurrencies – not only in terms of their market dynamics but also in terms of their performance and the role they play in portfolios. 

Gold has a dual nature

The sources of demand for gold and cryptocurrencies are very different. For more than 2,000 years, gold has served as means of exchange and been used as a store of value.4 Gold is owned by institutional and individual investors, as well as by central banks (Figure 1). 

Figure 1: Gold’s demand is linked to investment and consumption

Composition of average annual net demand*

*Based on 10-year average annual net demand estimates ending in 2020. It excludes over-the-counter demand. 
**Net jewellery and technology demand computed assuming 90% of annual recycling comes from jewellery and 10% from technology.

Source: Metals Focus, Refinitiv GFMS, World Gold Council


1We use cryptos interchangeably with cryptocurrencies through the note for stylistic purposes.

2Bitcoin first appeared in the literature in late 2008 – likely due to the disenchantment many market participants had with the financial system during the Global Financial Crisis – with the open-source software released in early 2009. Bitcoin was initially viewed as a means to increase trust in transactions, reduce costs and bypass private ledgers. Since then, thousands of cryptocurrencies and, more generally, crypto assets have hit the market. While all these can vary in many ways, they are generally built based on blockchain technology – a type of database that allows “digital information to be recorded and distributed but not edited”. Investopedia, Blockchain explained, November 2020.

3Throughout this report, we primarily use Bitcoin for comparison in terms of performance and other metrics as it the cryptocurrency with the largest market capitalisation and with the longest available historical data.

4See Money and gold..

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