Network Effect
One of the differences between the two is that all transactions can be viewed on the blockchain, while a large part of gold trade takes place on London’s over-the-counter market, where less data is available.
“The transparency in Bitcoin is helping drive a lot of interest,” said Lyle Pratt, an independent investor who owns Bitcoin. “Gold is kind of like a blackbox, you have to trust the custodians to tell you about any flows in the market.”
For Plurimi Wealth LLP’s Chief Investment Officer Patrick Armstrong, who allocates 6.5% of his discretionary funds into gold, even if Bitcoin has potentially bigger upside in an inflationary spiral, the risks are just too big. Gold also has a long history as a store of value that Bitcoin can’t match. There’s always the nagging suspicion that another, potentially central-bank backed, digital currency could supplant it.
“If the debasement trade works, it is very possible Bitcoin works better,” he said. “But it is also possible Bitcoin has no value in years to come, while I do not think the same can be said of gold.”
One thing that’s clear is Wall Street is taking Bitcoin seriously in a way that it didn’t in 2017. “I have changed my mind!” wrote Sanford C. Bernstein strategist Inigo Fraser-Jenkins in a report Monday. Bitcoin won’t replace gold, but there’s room for both, he said, especially if the future is one of inflation and extreme debt levels.
“I see it as being complementary,” he said in an interview. “Whatever one’s starting position was before the pandemic in terms of what your gold and crypto allocation should be, I think it should be materially larger now.”
This article was provided by Bloomberg News.