Gold vs. Bitcoin

In a prior post we discussed a Goldman Sachs (GS) report that was quite positive for long term gold investments, which was rather surprising, given that all of Wall Street would rather sell you a worthless IPO or toxic CDO rather than a precious metal.  We are glad, indeed, that Goldman is becoming more rational.

In the prior post we quoted GS saying: “precious metals remain a relevant asset class in modern portfolios, despite their lack of yield” and disagrees with Ben Bernanke and the naysayers “They are neither a historic accident or a relic. Indeed, by looking at each of the physical properties of an ideal long-term store of value…we can clearly see why precious metals were initially adopted and why they remain relevant today.”

Goldman Sachs has done it again, which is to say that it surprised us with another good report on gold, but this time with a spin: Gold vs. Bitcoin.  With Bitcoin being so new and backed by a new technology, one would have thought that GS would be an ardent supporter of the cryptocurrency; but it is not!  Goldman Sachs prefers GOLD over Bitcoin.

In the report, we read that GS focused on four key ares; Durability, Portability, Intrinsic Value, and Unit of Account.  Its conclusions are below.

Durability: While both require expertise for correct long-term storage, gold wins because cryptocurrencies are vulnerable to hacking through online wallets or the user’s computer or smartphone, are subject to regulatory risk, and network and infrastructure risk during a crisis.

Portability: Transferring bullion can be expensive, given its weight, need for a high level of security and high import taxes in some countries, such as India. In contrast, it’s much faster and cheaper to move bitcoins.

Intrinsic Value: There’s a limited supply of gold and other precious metals in the Earth’s crust, whereas in the case of cryptocurrencies, it’s easy to create alternatives, meaning there’s effectively no control over the supply at a macroeconomic level and no intrinsic value due to rarity.

Unit of Account: Gold is better at holding its purchasing power, and has much lower daily volatility. Bitcoin/dollar volatility has averaged almost seven times that of gold in 2017.

Overall, Goldman Sachs declared, “Gold wins out over cryptocurrencies in a majority of the KEY characteristics of money,” which are stated above.  What will surely come back to haunt the crypto-buyers in the future is that last key: volatility.  When said volatility is bearish and not bullish, they will all wish they owned gold.