Gold stands apart from crypto currencies

Gold and crypto currencies, WGC report 

Recently World Gold Council (WGC) published the report, Gold and crypto currencies: How gold’s role in a portfolio differs from cryptos. The recent rapid ascent of crypto currencies over the past year has captured the attention of investors. 

Often, investments in cryptos are equated to investments in gold. Despite some apparent similarities, we believe that gold stands apart from crypto currencies, both fundamentally and practically. Our analysis demonstrates that gold, 1: is a tangible asset with a unique dual nature as an investment and consumer good, 2: is highly liquid and less volatile, 3: is a proven long-term strategic investment & 4: may mitigate the risks that cryptos could bring to portfolios.

The report also highlights, gold’s role in a portfolio differs from cryptos. That said, 1: Gold and cryptos are fundamentally different, 2: The advent of blockchain and crypto currencies has catalysed innovation in the financial industry. 

3: Their proliferation and recent exponential price increase have captured investors’ imaginations. 4: However, the developments in blockchain and crypto currencies do not imply that crypto currencies are a substitute for gold. 

The argument that gold and crypto currencies such as Bitcoin are similar appears to stem from perceptions of, 1: their limited supply, 2: their role as alternatives to fiat currencies. & 3: 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. 

In particular, A: gold sources of demand are more diverse, B: supply and ownership of cryptocurrencies are more concentrated, C: cryptos have mostly contributed to portfolio performance through returns but have added significant risk, D: gold is a high-quality liquid asset and portfolios with cryptos may benefit from higher allocations to gold & E: evolving regulatory frameworks may change the value proposition of cryptocurrencies.