Are cryptocurrencies substitute for gold?
Baku, Azerbaijan, Jan. 28
By Leman Zeynalova – Trend:
Cryptocurrencies may become an established part of the financial system, but they are unable to replace gold as a mainstream financial asset, according to the report of the World Gold Council (WGC).
Authors of the report titled "Cryptocurrencies are no substitute for gold" say that bitcoin’s parabolic price rise was the big story of 2017 – putting the spotlight on the cryptocurrency market. While gold’s performance was a solid 13 percent, it was a fraction of the 13-fold increase of bitcoin by the end of the year. Some commentators went as far as to claim cryptocurrencies could replace gold.
Nevertheless, WGC experts believe that gold is very different from cryptocurrencies, as it is less volatile and has a well understood role in an investment portfolio. Moreover, it has a more liquid market.
In particular, according to the experts, not every investor is ready to make investments in bitcoin, which has high volatility evidenced by the sharp price correction it has experienced since mid-December 2017 – falling by more than 40 percent in a month.
The current size of the cryptocurrency market has been estimated to be valued at over $800 billion. Bitcoin trades $2 billion, on average, a day. This volume, however, is less than 1 percent of the total gold market that trades approximately $250 billion a day.
Another advantage of gold is that the sources of demand for gold are very different from cryptocurrencies, according to WGC.
"It also has a large and diverse attraction as jewellery, which remains the largest source of demand – typically representing between 50 percent and 60 percent of annual demand over the past 20 years. Also, gold is even used in the computer chips that ‘mine’ bitcoin," said the report.
Bitcoin and other cryptocurrencies are designed to be used as tokens in electronic payment systems. For now, however, the opportunities to spend bitcoin are rather limited, according to WGC experts.
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