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Investors Ditching Bitcoin for Gold

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Bitcoin investors are selling cryptocurrency and buying gold, according to a number of investment analysts.

“I do think that Bitcoin pulled a little bit of demand away from gold last year, in 2017,” Jan Van Eck told CNBC’s ETF Edge last week. “Interestingly, we just polled 4,000 bitcoin investors and their number one investment for 2019 is actually gold. So gold lost to bitcoin and now it’s going the other way.”

A year ago, Bitcoin was trading at $12,000. But the digital currency has not cracked above $4,000 in over three weeks.  Since bitcoin’s peak at just above $20,000, the cryptocurrency has lost 82% of its value. Gold is up about 2.5% in that same period.

Seymour Asset Management chief investment officer Tim Seymour told CNBC it will be difficult to turn the tide back to bitcoin and away from gold.

Not only have we lost all liquidity on the underlying [commodity] but truly outside of the existential blockchain argument, it’s been very difficult to argue store of value which is really what we started hearing about. Gold is a store of value and there’s no disputing that.”

A report released by the World Gold Council this week may help explain why many crypto investors are turning to gold. The report declared that “cryptocurrencies are not a safe haven.”

In Q4 2018, as global stock markets experienced their worst quarter since 2009, cryptocurrencies had a prime opportunity to demonstrate qualities associated with safe havens like gold. However, cryptocurrencies, such as bitcoin, behaved like risky assets and fell while gold rallied.”

As the WGC put it, “As events of late 2018 indicated, the perceived ability of cryptocurrencies to serve as a liquid, safe-haven hedge and store of value in times of market stress, did not hold.”

The WGC noted several reasons why cryptocurrencies don’t serve as a substitute for gold.

  • Gold is less volatile
  • Gold has a more liquid market
  • Gold trades in an established regulatory framework
  • Gold has a well-understood role in an investment portfolio
  • Gold has little overlap with cryptocurrencies on many sources of demand and supply.

2018 ended up as the worst year for US stocks in a decade. And last month ranked as the worst December on Wall Street since 1938. But if you owned gold, things weren’t quite as painful for you as they were for investors without any of the yellow metal. While both stocks and bitcoin sagged, gold rallied. In fact, gold outperformed the S&P 500 in December, through the fourth quarter, and over the entire year.

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