Bitcoin in addition to, and not instead of gold

Exponential price increases in Bitcoin have capture investors’ imaginations, initiating an ongoing debate about whether cryptocurrencies are a substitute for gold in a personal investment portfolio.

In an article recently published by The World Gold Council titled, “Gold and cryptocurrencies How gold’s role in a portfolio differs from cryptos” the case is made for how gold differs substantially from Bitcoin by comparing the assets on volatility, mining and ownership concentrations, and other factors.

Segments of their analyses provide:

• “Bitcoin has been three times more volatile than the S&P 500 or the NASDAQ composite over the past two years, and more than four and a half times more volatile than gold.”

• “Bitcoin has lost 2.5% or more once in four weeks on average compared to once in 12 weeks on average for the S&P 500 or NASDAQ, or once in 13 weeks on average for gold.”

• “As reported by Bloomberg, “five mining entities – all of them based in China – control 49.9% of all computing power on the network, the highest concentration of mining power ever…”, where “Gold mining is well distributed around the globe. The top five gold producing countries are China, Russia, Australia, the US, and Canada, with various Latin American and African countries not far behind.”

• Bitcoin “ownership is very concentrated – just 2% of Bitcoin holders own 95% of all available Bitcoins.” “Ownership of above-ground stocks [gold inventory] is widely distributed. The US Treasury is the largest known single holder of gold but only owns 4% of all above-ground stocks. Almost 50% exists in the form of jewelry (distributed globally), while 21% is owned by a large number of investors – individual and institutional – in the form of bars, coins and gold ETFs.”

When it comes to your personal investment portfolio, risk mitigation is imperative. If you hold only Bitcoin, you may want to acquire gold.

Sources:

World Gold Council, Gold Hub (2021 February 5) “How gold’s role in a portfolio differs from cryptocurrencies”. Retrieved from: https://www.gold.org/goldhub/research/gold-and-cryptocurrencies

Image: Aleksi Raisa