Will bitcoin replace gold as top safe-haven asset?

Bitcoin continues its upward spiral and investors are now choosing between gold and bitcoin as an option to hedge their risk in safe-haven asset.

Currently the virtual currency is quoted around $10,629 and has been competing with the yellow metal. Endorsing the trend, Nigel Green, chief executive and founder of deVere Group, said Bitcoin will replace gold as the ultimate financial safe haven within a generation.

"Growing geopolitical uncertainty, including Brexit and the US presidential election, and central banks' historic money printing policies, amongst other issues, are prompting many investors to urgently rebalance their portfolios," he said.

For thousands of years, he said gold has been the ultimate financial safe haven and has always been the go-to asset in times of political, social and economic uncertainty as it is expected to retain its value or even grow in value when other assets fall, therefore enabling investors to reduce their exposure to losses.

Moving forward, older investors are likely to continue with gold, but millennials and Generation Z - digital natives - can be expected to go for bitcoin and other digital currencies instead.

"I believe that the precious metal will lose its crown as the most sought-after reserve asset to Bitcoin within a generation - particularly because the biggest-ever generational transfer of wealth - likely to be more than $60 trillion - from baby boomers to millennials is already underway," said Green.

Bitcoin is slowly but steadily consolidating its position as an alternative safe haven asset for investors who would like to diversify their assets away from equities. In spite of its high volatility, Bitcoin's correlation based on log normal returns with S&P 500 index is relatively low at 31.1 per cent for the period from January 2019 to September 2020 - but this is not as low as that of gold with the equity index at four per cent.

Arshad Khan, co-founder and CEO of Arabian Bourse, said the year-to-date returns of Bitcoin is much higher than gold indicating that Bitcoin has potential to be considered as an alternative safe haven asset in the years ahead.

"Bitcoin's other advantages like no shipment and storage costs make it immensely attractive for investors," he said.

Bitcoin has some of the features like gold such as scarcity and decentralisation. And in some areas, bitcoin fares better than gold, like seizure resistance, verifiability, etc. gold has a better track record over millennia and plays a vital role for many investors.

Dubai- resident, Deepak Machado, Bitcoin enthusiast, said: "I would say both these asset classes have room to co-exist. Bitcoin is slowly eating into the market cap of gold and other safe-haven assets. We are seeing more and more institutional interest these days. I am quite bullish on the developments. In the long-term bitcoin has the potential to replace gold as a store of value asset."

"The market cap of bitcoin would need to overtake that of gold for it to reach the number one safe haven asset status. In terms of liquidity there is no shortage of that with daily volumes reaching up to $90 billion. It is a question of when and not if bitcoin will be the go to safe haven asset in my opinion," said Saeed Al Darmaki, chairman of eGovern.

"In the long term bitcoin will replace gold as the safe haven standard however for the short term it is becoming more correlated to the precious metal. Institutional investors are becoming more comfortable with bitcoin due to greater insurance provision, custody solutions and regulated brokers/exchanges trading it."
- sandhya@khaleejtimes.com

Sandhya D'Mello

Journalist. Period. My interests are Economics, Finance and Information Technology. Prior to joining Khaleej Times, I have worked with some leading publications in India, including the Economic Times.