‘Safe Haven’, ‘Digital Gold’, ’Backup Asset’ are all the adjectives used to describe Bitcoin in 2016. The reason behind these is fairly simple and intuitive. In the face of Geo-Political crises, which led to economic turmoil across the globe, Bitcoin came to the rescue for many investors. Traditionally Gold has been the safe haven for such kind of market turmoil. The primary reasons for it are the scarcity of Gold and its non-correlation with other assets. With the cryptocurrency’s limited supply and ease in transactions, it has literally gained the name and status of ‘Digital Gold’.
Interestingly in ‘2015’ Bitcoin was the best performing asset class that outperformed traditional index funds and complex portfolios. The trend has continued in 2016 and Bitcoin still remains unbeaten when it comes to returns. Infact it has been performing better than Gold, making investors wonder if it can actually replace Gold in their portfolios. Let’s look into the aspects which make Bitcoin better than Gold:
Ease of Transaction:
Major investments in Gold do not actually result in handling of the commodity. Investors generally move the funds invested to reap their profits after a period of time. When it comes to bitcoin, it’s an investment that you can actually transfer, spend and utilize in day to day life thanks to the growing adoption of the currency. The ease with which funds can be moved in and out of the currency has always attracted big time investors for short term hedging. This one advantage Bitcoin has over Gold, Gold cannot be used in day to day life for various transactions directly.
Greater Extent of Non-Correlation:
Non-Correlation with other asset classes is a very important parameter which makes an asset a hedge balancing portfolio diversifier. As scarce and untouchable Gold is, it takes a dive along with other metals when the oil markets are collapsing. Fundamentally that is expected of any commodity as oil prices have a direct bearing on the transportation cost. The cost of a commodity also factors this cost and hence the commodity becomes cheaper when oil prices drop. Bitcoin being a digitally programmed asset, has no direct correlation with any of the physical commodities as the fundamental markets driving the price are totally different. This makes it an ideal hedging component in traditional basket of commodities.
Performance till date:
This year, Bitcoin has beaten Gold by a big margin and is still enjoying a healthy uptrend. While Gold gained 8.73% and outperformed S&P 500 and Twenty-year US Treasury Bonds, it still couldn’t match Bitcoins 100% overshoot.
|SPDR Gold Shares (NYSE:GLD)||8.73%|
|Bitcoin Investment Trust Shares (OTCQX:GBTC)||+107.42|
|iShares 20+ Year Treasury Bond||-0.59|
With a known 21 million limited supply, perceivably it is being considered further scarcer than Gold and will surely see a significant rise in value in the years to come.