Van Eck thinks the choice between gold and bitcoin isn’t a case of choosing one or the other. It reckons the pair can co-exist – at least for now.
For centuries gold has been perceived as a store of value and a consequential safe haven. But in the past several months institutions have been buying into Bitcoin and the cryptocurrency has kept reaching new highs.
This has led to Bitcoin being compared to gold or even gold’s status being questioned.
A Van Eck analyst note from earlier this week authored by portfolio manager Joe Foster noted Bitcoin now has a lot in common with gold.
“Both have limited supply, sit outside of the mainstream financial system, carry no counter-party liabilities, are uncorrelated assets and have been used as currencies,” Foster said.
“The anti-establishment ethos of Bitcoin users is akin to the lack of trust many gold investors have in the financial system.”
Of course, the assets have some differences.
As Foster noted, despite Bitcoin having the potential to replace paper currency it is like paper currency in only having value so long as the public believes it has value.
And it lacks the nostalgia and everyday uses of the precious metal.
“(Gold) is used in electronics, medicine and aerospace, it is displayed on millions of people around the world every day, it has utility beyond its use as a store of value and is intertwined with human culture and history,” he said.
Gold or Bitcoin? Why not both?
But even if Bitcoin does become a store of value it doesn’t mean gold will lose its status.
Foster thinks the current environment, in which there is substantial uncertainty, is ideally placed for both assets to work together.
“We are entering a post-pandemic era where rates have nowhere to go but up, the potential for excessive inflation is palpable,” he said.
“Investment strategies that worked for the last 40 years are not likely to work in the foreseeable future. This investment landscape of risk and uncertainty is amenable to both gold and Bitcoin.
“While Bitcoin may steal some gold investors at the margin, it is also likely to attract new investors to the safe-haven realm where gold and silver are established. Perhaps gold will find new use as a stabiliser in volatile crypto funds.
“In any case, it is not a gold vs Bitcoin world. It is a gold and Bitcoin world, where both can coexist.”
Issues facing Bitcoin
Foster noted several logistical issues facing Bitcoin are still unsolved including the low speed and high cost of transactions, how it is regulated and taxes and how to prevent illicit activity.
However he noted that even though Bitcoin is less stable than gold, it is becoming less volatile.
“While Bitcoin is more volatile than gold or gold stocks, the volatility profile is stabilising, indicative of a maturing speculative asset class.”
Ultimately whatever side one sits on the fence of this debate the one issue that is indisputable is that as Foster noted, Bitcoin can no longer be dismissed as a fad or tech curiosity.