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        Gold Insights

        Bitcoin: The New Gold?

        In recent years cryptocurrencies, Bitcoin in particular, have been likened to gold. The main similarity often cited is their perceived ability to protect investors from currency debasement because neither are tied to a specific country’s currency. This has led many investors to dub Bitcoin “the new gold”. Here we briefly highlight three key differences between gold and Bitcoin that should dispel the notion that Bitcoin is a substitute for gold in investor portfolios.

        Clive Maguchu, CFA
        Senior Strategist
        Robin Tsui, CPA, CAIA, CA
        APAC Gold Strategist

        Real World Demand

        Unlike bitcoin, the majority of global gold demand is tied to tangible uses as a real world commodity. These diverse sources of demand - both cyclical and counter cyclical — have been the source of gold’s low historical correlation to financial assets and its unique ability to provide key strategic portfolio functions.

        Liquidity

        Gold is a well-established asset with liquidity in line with the most liquid traditional asset classes. Bitcoin is still a relatively new asset with limited liquidity, (relatively) low trading volume and a lack of transparency in terms of market access and data.

        Protection Against Risks

        Historically, gold has served as an effective hedge against heightened volatility, geopolitical turmoil, and significant risk off events resulting in equity market drawdowns. Meanwhile, Bitcoin has behaved in line with risk assets during significant tail risk events and market volatility. This is in line with the earlier observation of Bitcoin’s high beta to a 60/40 portfolio and equities in particular.

        The primary motivation for gold investment is defensive in nature. Investors look to gold for downside protection, portfolio diversification, while providing risk-adjusted real returns over time. Bitcoin’s primary investment motivation is speculative in nature and driven by upside-potential making it a more volatile pro-cyclical asset.

        Read the full whitepaper: Gold For Australian Investors: A Portfolio Diversifier With Staying Power.

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        More On Gold

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