“Cryptocurrencies are no substitute for gold.”
This is the title of a research paper issued by the World Gold Council (WGC), the market development organization for gold.
Over time, and especially since last year, numerous comparisons have been made between gold and cryptocurrencies, particularly Bitcoin.
With the sky-high price of the cryptocurrency along with its investors’ penchant for “saving” it, experts and general audience alike took seemingly no time in calling it “digital gold,” a term that has now gained traction to the point where the WGC has to address it.
Bitcoin is not comparable to gold
The WGC paper is quick to address the differences between gold and what is considered the premier cryptocurrency of the world. It explains that while Bitcoin’s unprecedented rise last year was phenomenal, it does not mean that it was bound to replace gold in any capacity as had been suggested by some experts.
The paper further points out a few critical differences between Bitcoin and gold.
It explains how gold is more stable in value and less prone to fluctuations, how it is a commodity that trades in a regulatory framework yet maintains a tremendous level of liquidity, and how it has a very established role when it comes to investments. But of course, gold has been around for centuries; Bitcoin has been around for almost a decade.
The paper further mentions that unlike Bitcoin, gold has a demand that is considered universal when it comes to trading it. No matter where you are or which region you have traveled to, you will always be able to trade in your gold for the local currency. Whereas, the same cannot be said about Bitcoin or any other cryptocurrencies for that matter as they are limited in demand and can only be understood by a select few who are familiar with the mechanisms of the technology.
The paper further mentions that despite reports of gold’s value fluctuating or getting negatively affected due to Bitcoin and cryptocurrencies, no evidence backs such claims. The paper explains that the pace at which gold’s value improved last year is in line with previous few years as well.
In the report, the WGC joins other revered supporters of blockchain technology by commenting that the technology has potential to be beneficial and effective and could be utilized in various avenues by the gold industry in addition to the other market segments that are currently researching the technology.
It further elaborates that at the moment, several entities from the gold market itself are assessing the usage of blockchain to effectively turn gold into a “digital asset” by introducing functions on its supply chain and post-trade processes – functionalities that can be made available through private blockchains rather than public ones.
Moving towards its conclusion, the report explains that while cryptocurrencies have shown “remarkable” increase in the last year, they remain untested in several markets especially when it comes to having them as part of an investment portfolio.
It describes that until cryptocurrencies have a less-volatile value and more options for liquidity, it would not make much sense to compare it to gold, which does not only have these characteristics but also some other key aspects that are viable for an investment asset.
The WGC ends the paper by stating that “these characteristics underpin gold’s role as a mainstream financial asset that will likely continue to resonate in today’s digital world.”