It was only a matter of time before crypto bulls began forecasting that Bitcoin would steal the title of “safe haven” from gold.
Nigel Green, chief exec of financial advisory and fintech deVere Group, boldly claims that “Bitcoin will replace gold as the ultimate financial safe haven within a generation”.
So what’s the rationale behind it? According to Green, it’s all to do with millennials and Gen Z.
These younger generations are set to inherit some $60 trillion worth of wealth – “the biggest-ever generational transfer of wealth” from the ‘Baby Boomer’ generation.
Younger Australians alone will be the beneficiaries of around $3.5 trillion.
And, according to US-based cryptocurrency exchange Kraken, a growing swathe of Australian investors are seeking to diversify their holdings away from traditional ASX-listed blue chip companies in favour of alternate assets, including digital currencies.
“For thousands of years, gold has been the ultimate financial safe haven,” Green says.
“It’s 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, who are so-called ‘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.”
Green argues that Bitcoin’s key characteristics — such as its fixed supply and how transactions are immutable, distributed, non-sovereign and decentralised — are highly attractive for investors in an uncertain but increasingly digitalised, tech-driven world.
“It has already earned it the label ‘digital gold’ and I believe its status in this regard will grow exponentially over the next year or two, especially with the economic fallout from COVID, central banks’ record-shattering levels of money-printing, heightening trade tensions between economic superpowers, and mounting social and political unrest.”
Caroline Bowler, CEO of Australian cryptocurrency and digital asset exchange BTC Markets, says that while gold has been considered a successful store of wealth for centuries and Bitcoin has existed for little more than a decade, it isn’t necessarily a “zero sum game”.
“Bitcoin is on track to mature as part of a new asset class, with in-built deflationary attributes,” she told Stockhead.
“I’m not an investment advisor but this characteristic alone burnishes its safe haven reputation.”
However, Bowler cautioned investors to weigh the two assets against their own portfolio requirements.
“Gold and Bitcoin differ primarily on the technical aspects – storage, distribution, transaction speed for example,” she said.
“These may be increasingly relevant as we move deeper in to the digital age of investment.”
But the gold analysts are not convinced.
Counterpoint: Why Bitcoin won’t dethrone the traditional safe haven
Gavin Wendt, MineLife founding director and senior resource analyst, says gold has a 5,000-year history as a long-term store of wealth – and it’s seen off a host of challengers, including various types of financial instruments over recent decades that were supposed to render gold obsolete.
“Instead, what we are seeing totally contradicts that notion — gold is trading at close to all-time record highs and has taken another ‘barbarous financial relic’ along for the ride, silver,” he told Stockhead.
“One of the most important factors that gold has in its favour is that there is always a ready and liquid market to trade it, because it has been universally accepted throughout the history of mankind.
“Now, the issue facing Bitcoin is that it is open to competition itself – who says other crypto-currencies won’t come along and unseat it? If Bitcoin is still around in 5,000 years, then we can start to have a discussion.”
Hedley Widdup, investment manager at Lion Selection Group, says for something new to claim the crown from gold as the ultimate financial safe haven, it would need to prove to be more attractive than gold has been for a long period.
“Surely its value and attraction has evolved over time, but I think you can say gold has held an esteemed place for many cultures (noting that has not been universal) for up to thousands of years,” he told Stockhead.
“Bitcoin and other cryptocurrencies are recent in comparison. I’d say that the ability to hold gold physically is one of the aspects that will be very hard for a store such as bitcoin to overcome.”
Widdup recounted stories he’d read of special forces soldiers in the first Gulf War carrying a small amount of gold sovereigns that they could use as a universal bribe at a sign of trouble if force had failed.
“Bitcoin is less attractive in those sort of circumstances,” he said.
“Part of gold’s allure is in its physical qualities – lustre and lack of tarnish which make it attractive for jewellery which tends to align with the notion that it must be valuable, none of those apply to bitcoin.”
There are also certain countries that place great cultural importance on the precious metal.
“Indians are famous for the position that gold occupies in a cultural favouritism for precious metal, and I became quite aware of that in a discussion with an Indian cab driver who took me to the airport at the Gold Coast once,” Widdup said.
“You and I might see an ounce of gold as distinct from a piece of jewellery and regard both as having value but not a place we might install upwards of 50 per cent of our wealth.
“This guy told me his father had firmly instilled in him that gold is how he would store his money – because it can be converted into real estate or paid in other important circumstances like for a wedding, and the phrase he used was ‘and will always command respect from people you offer it to’.
“Sure we might be in a transition to Bitcoin, however I wonder if that sort of appreciation might be a challenge for Bitcoin to overcome.”
Gold crossing into the digital domain
Liam Twigger, managing director of corporate advisory PCF Capital, has a slightly different perspective.
While he doesn’t see Bitcoin replacing gold, he does see a digital form of gold replacing Bitcoin.
“In a world where governments print money and talk down their currencies to promote exports and economic growth, there is clearly a growing market for alternative stores of value,” he told Stockhead.
“To be a store of value and a medium of exchange you can’t have a base price that moves with the volatility of Bitcoin.
“Over the last couple of years it’s traded roughly between $4,000 and $12,000 and is currently up 150 per cent since April.”
Twigger said retailers who survived on small margins would go bust if they funded their stocks with Bitcoin.
“There are, however, an increasing array of stable coins — those that combine the features of a number of digital currencies and they may well have a role in the future.
“However, nothing I have seen offers the value, security and exchange-ability of gold which is now also available in digital form but backed by physical gold.”
In late 2018, the Perth Mint launched its GoldPass app, which issues digital certificates to provide investors guaranteed ownership of specific stores of physical gold.
These certificates are stored within a digital vault on the owner’s mobile device and are accessible only by the owner and always verifiable against the Mint’s ledger, allowing investors to buy and sell gold in real time.