The world’s most capitalised cryptocurrency, Bitcoin, is still trying to recover from the brutality of the most recent sell off. However, as Bitcoin struggles, Gold – its analog predecessor safe haven asset – seems to be picking up momentum.
Bitcoin has been touted as a digital alternative to gold for quite some time now, saying that the two assets have similar properties which make the both of them a good safeguard against the adverse effects of inflation.
However, the key differences between the two seem to be making themselves more visible as the inflation debate continues. On one hand, the price of Bitcoin has taken a beating while the yellow metal enjoyed a sustained flow of investor interest.
Over the past few weeks, the price of Bitcoin dropped from around $ 57 000 to as low as $29 000. Gold, on the other hand, was able to regain all losses made in the earlier part of the year – rising to a most recent high of around $1900. This is of particular interest because Bitcoin should be shining amid the increased risk of inflation.
Goldman Sachs’ global head of commodities research, Jeff Currie, has given his take on why that’s happening.
“Digital currencies are not substitutes for gold. If anything, they would be a substitute for copper, they are pro-risk, risk-on assets. They are a substitute for risk-on inflation hedges, not risk-off inflation hedges” Currie told CNBC Squawk Box .
However, Currie did not completely rubbish the idea of Bitcoin as a hedge against inflation. Instead, he points out the differences between “good inflation” and “bad inflation”, for which different assets are used as hedges.
“Good inflation is when demand pulls it” and he said Bitcoin, copper and oil are hedges against this type of inflation.” Continuing to note that, “Gold hedges bad inflation, where supply is being curtailed, which is focused on the shortages on chips, commodities, and other types of input raw materials. And you would want to use gold as that hedge.”
