Is Bitcoin a Threat to Gold?

Some people were predicting Bitcoin would push through the $10,000 level before the end of the year. At the rate it’s going, it may happen before the end of the month.

Bitcoin is on a roll. The cryptocurrency broke $9,000 over the Thanksgiving holiday and quickly pushed up to $9,700. There are also increasing signs of mainstream adoption. CME Group plans to list Bitcoin futures beginning in mid-December, and Coinbase says it added more than $100,000 new users over the Thanksgiving holiday.

Some analysts look at all the action in the world of cryptocurrency and predict the demise of gold. But there are plenty of reasons to believe gold will be just fine.

Last month, Jim Rickards called the raging gold vs. Bitcoin argument a “phony debate,” because cryptocurrencies and precious metals are fundamentally different things.

From my perspective, you might as well discuss gold versus watermelons or bicycles versus bitcoin. In other words, it’s a phony debate. I agree that gold and bitcoin are both forms of money, but they go their own ways. There’s no natural relationship between the two (what traders call a ‘basis’). The gold/bitcoin basis trade does not exist.”

The managing director of Australia’s biggest gold mining company recently made a similar point. Sandeep Biswas called Bitcoin a new age currency entering into the mix with old age currencies, but he doesn’t view it as a threat to the value of gold.

A store of value, and maybe I’m too much of a traditionalist, in my view has to be something you can feel and touch. So a store of value, like gold, or it used to be silver or other precious metals, in my view is a true store of value. Because it doesn’t matter what happens, if you’ve got your arm around that gold that’s yours, for example. The thing with Bitcoin and other currencies, it’s got to be backed by something, so currencies are backed by government; that’s fine; Bitcoin is backed by security or its uniqueness. So I see Bitcoin as more of a currency than a store of value, such as a precious metal such as gold. So I don’t really see, (and) I know there’s a lot of talk about it, but I don’t see Bitcoin as a fundamental threat to the value of gold. It’s just introducing a new age currency into the mix of old age currencies.”

It’s easy to disregard somebody like Biswas and blow him off because he’s “old school” and has a vested interest in gold, but it’s important to consider his argument on its merits. He’s not saying Bitcoin has no value. He’s just pointing out that cryptos and precious metals have some fundamental differences – namely that gold and silver are real tangible things with utility beyond their use as money.

Biswas said he’s optimistic that gold will continue to increase in value. He said the growth in global wealth – particularly in India and China – coupled with tightening supplies will drive gold higher in the future.

And then the other thing going for gold, and it comes back to deeper ore bodies, it’s getting harder to find. So you’ve got something that’s valuable, it is a genuine store of value, it’s physical, you’ve got people becoming wealthier and it’s becoming scarcer and scarcer. That I think long-term bodes well for gold, but in the short term it can be volatile.”

As we have said before, you don’t have to take an either-or position on Bitcoin and precious metals. In a world of expanding wealth, there is certainly room for more than one kind of asset. You can have both. In fact, it might be a good idea to have both.

At SchiffGold, we recommend a diversified approach to investing in Bitcoin. Buying gold and silver is a great way to diversify your cryptocurrency portfolio. You can even buy gold and silver with Bitcoin. In the world of investing, it’s never wise to put all of your eggs in one proverbial basket. Diversifying your cryptocurrency portfolio with precious metals can help mitigate some of the potential downsides and put you in an overall stronger financial position.

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