Cryptocurrencies Cannot Replace Gold: World Gold Council

A report by the World Gold Council concludes that cryptocurrencies such as Bitcoin are too volatile to ever serve as substitutes for gold.

The World Gold Council has declared that cryptocurrencies are far from being reliable investment tools or stores of value, unlike gold which is a tried and tested asset with a 7000-year history.

In a report published earlier this week, titled “Cryptocurrencies are no Substitute for Gold”, the council argues that despite Bitcoin’s meteoric rise last year, gold has several characteristics that make it a solid financial asset which is not threatened by digital currencies. According to the report, gold, in comparison to cryptocurrencies:

  • “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.”

With Bitcoin having smashed through the $20,000 mark in December last year, only to drop under $10,000 in January, the council’s criticism of its volatility appears justified. Although Bitcoin is viewed by many as a store of value, and referred to as “digital gold” within the crypto community, its wild price fluctuations make it an unreliable asset, unlike physical gold.

The report goes on to discuss liquidity – with the global gold market trading around $250 billion a day, compared to Bitcoin’s $2 billion, gold emerges as the clear winner. Currently, even retail cryptocurrency investors and traders are forced to jump through multiple hoops to convert fiat into crypto and vice versa; gold, however, is typically easier to buy and sell, and has a much larger global market.

The council also comments on cryptocurrencies’ lack of real-world utility, in comparison to gold, which has a diverse demand, ranging from technical application to jewelry:

“...gold is a tangible good, with real technical applications – gold is even used in the computer chips that ‘mine’ bitcoin.”

In addition, the council also points towards the looming threat of regulations against cryptocurrencies. It highlights how gold is widely authorized and faces no such hurdles from governments and financial regulators, whereas cryptocurrencies are in a constant battle against restrictions.

Earlier this month, during the crypto market crash, a seemingly inverse co-relation between cryptocurrencies and gold became apparent – when the crypto market booms, gold sales drop, but investors flock to gold to solidify their gains whenever the crypto market takes a bearish turn.

At the moment, however, it appears that both digital currencies and physical gold have strong positions as investment tools and financial assets with varying characteristics and qualities. While cryptocurrencies offer high rewards for high risks, gold is a more stable, time-tested asset. Savvy investors are likely to be managing their risk by diversifying their investments in both asset classes.