One of the most common topics in the world of investment during the last decade refers to gold and cryptocurrencies. Specifically, bitcoin, since its appearance 15 years ago, after the global financial crisis, has been considered ‘digital gold’ or ‘gold 2.0’ and it has been claimed that it came to replace the precious metal as a refuge asset.
However, those forecasts have not been fulfilled and bitcoin has not affected the gold market.
An interesting study published by ABC Bullion has investigated the impact that bitcoin has had on the gold market and concludes that, contrary to what is believed, the cryptocurrency has not affected the precious metal as an investment asset nor has it taken a share market.
The stagnation that the price of gold in dollars has suffered in recent times (but not in other currencies) may be an argument in favor of bitcoin taking over from gold as a refuge asset and hedge against inflation.
To this must be added the popularity that cryptocurrencies have acquired among the youngest investors, who are going to be the ones who move the most assets in the coming years.
However, ABC Bullion point out three reasons why gold is not going to be replaced by bitcoin:
1.- The So-Called ‘Lost Decade’ Of Gold Has Had Nothing To Do With Bitcoin
Indeed, the price of gold has not changed much since the end of 2011 when it began trading near $1,900 an ounce. While its performance over the past ten years may have disappointed some investors, remember that gold had risen to $1,900 from less than $300 an ounce in early 2000.
Gold was also considered the most popular long-term investment option among retail investors in 2011. It was only logical that after such a rise in previous years, gold would go through a corrective price cycle, which is exactly what happened. in the ‘lost decade’, since 2011.
In addition, ABC Bullion also point out that, in that period until the 2020 pandemic, the precious metal starred in:
- One of the longest bull runs in equity markets on record.
- One of the longest periods of economic growth.
- The lowest ten-year period of official inflation rise in decades.
- An unprecedented collapse in the prices of raw materials.
2.- Young Investors Are Getting Older
Precisely, this ‘lost decade’ of gold coincided with the birth of bitcoin and the cryptocurrency markets. Although younger investors quickly embraced investing in these new assets, their volatility and the need for safer long-term investments as they age have changed their views on gold. The bitcoin crash in 2022 will surely have contributed to this change of heart.
3.- The Bitcoin Market Is Very Small About The Gold Market
Bitcoin is still a tiny asset class. Their returns have been spectacular, but thanks to the fact that they started from nothing in terms of market size.
The following graph, produced by ABC Bullion, shows how insignificant bitcoin is in the context of the gold market, comparing the size of both markets between 2010 and 2022, and showing the percentage of that market that each asset contributes.
Even at its peak relative to gold, bitcoin accounted for less than 7% of the total share of both assets. Since 2010, bitcoin has averaged well under 2% of the share of both asset classes combined.
Since bitcoin was born, the gold market value has increased by $4.5 trillion, which is more than 12 times the entire growth in bitcoin’s value since its inception.