Cryptocurrency investors woke up to a lot of red ink last week with the MVDA25 index down 20%. Now is a good time to ask whether Bitcoin is the new gold.
A quick search on the topic finds many posts, a couple of interesting ones are,
but perhaps the most useful is the research of the world Gold Council
World Gold Council
The World Gold Council says,
In our view, gold is very different from cryptocurrencies, because gold:
- is less volatile
- has a more liquid market
- trades in an established regulatory framework
- has a well understood role in an investment portfolio
- has little overlap with cryptocurrencies on many sources of demand and supply.
They are right for the institutional investor
The Cryptocurrency markets fall short in all these areas, in fact total daily cryptocurrency trades are less than 1% of gold’s. I think it is for this reason that there is no significant correlation between the gold price and cryptocurrency indexes.
They are wrong for the retail investor
Gold has big problems for the retail investor. Minted gold products such as coins and bars must be bought for more than the spot gold price because of the cost of production and then stored securely.
Here are some typical spreads,
- Gold 10 gram: sells RM1,731, buys RM1,593, spread 8.66%
- Gold 20 gram: sells RM3,429, buys RM 3,223, spread 6.39%
- Gold 50 gram: sells RM8,533, buys RM 8,064, spread 5.815%
- Gold 100 gram: sells RM16,987, buys RM 16,138, spread 5.26%
- Gold 250 gram: sells RM42,267, buys RM 40,365, spread 4.71%
To sell gold you must to physically take it to dealer. In contrast Bitcoin spreads are usually less than 0.3% and you can buy and sell from the comfort of your home.
Other big advantages of cryptocurrencies are
- fraud is difficult (gold bars can be faked)
- easily sub-divided, you can sell half a Bitcoin but not half a gold bar
- they are fungible – that is easily converted into other goods and services. You can buy a coffee with Dash coin but not with a Krugerrand.
- strong privacy – purchases are difficult to track
Bitcoin is the new gold
Because it has the strongest brand. The retail investor will want to buy the best store of value and the one they feel most comfortable with and brokers will sell it to them. Bitcoin has an unstoppable lead and this can only grow.
My prediction for 10 years time,
- Only Bitcoin will be truly regarded as store of value coin.
- Other coins such as Dash will be far more popular for retail purchases. Today stores offer both Visa and MasterCard, in future they will accept multiple coins.