Gold and Cryptocurrencies
BY World Gold Council | 2/2/2021
Excerpted from WGC Report
How Gold's Role in a Portfolio Differs from Cryptos
The recent rapid ascent of cryptocurrencies over the past year has captured the attention of investors. Often, investments in cryptos1 are equated to investments in gold. Despite some apparent similarities, we believe that gold stands apart from cryptocurrencies, both fundamentally and practically.
Our analysis demonstrates that gold:
Is a tangible asset with a unique dual nature as an investment and consumer good
Is highly liquid and less volatile
Is a proven long-term strategic investment
May mitigate the risks that cryptos could bring to portfolios.
Gold and cryptos are fundamentally different
The advent of blockchain and cryptocurrencies has catalysed innovation in the financial industry. Their proliferation and recent exponential price increase have captured investors' imaginations. However, the developments in blockchain and cryptocurrencies do not imply that cryptocurrencies are a substitute for gold.
The argument that gold and cryptocurrencies such as Bitcoin2,3 are similar appears to stem from perceptions of:
Their limited supply
Their role as alternatives to fiat currencies.
World Gold Council Website
1 WGC uses cryptos interchangeably with cryptocurrencies through the note for stylistic purposes.
2 Bitcoin first appeared in the literature in late 2008 – likely due to the disenchantment many market participants had with the financial system during the Global Financial Crisis – with the open-source software released in early 2009. Bitcoin was initially viewed as a means to increase trust in transactions, reduce costs and bypass private ledgers. Since then, thousands of cryptocurrencies and, more generally, crypto assets have hit the market. While all these can vary in many ways, they are gen
3 Throughout this report, the WGC primarily uses Bitcoin for comparison in terms of performance and other metrics as it the cryptocurrency with the largest market capitalisation and with the longest available historical data.
Important Disclosure
Past performance is no guarantee of future results. You cannot invest directly in an index. Investments, commentary and statements are that of the author and may not be reflective of investments and commentary in other strategies managed by Sprott Asset Management USA, Inc., Sprott Asset Management LP, Sprott Inc., or any other Sprott entity or affiliate. Opinions expressed in this commentary are those of the author and may vary widely from opinions of other Sprott affiliated Portfolio Managers or investment professionals.
This content may not be reproduced in any form, or referred to in any other publication, without acknowledgment that it was produced by Sprott Asset Management LP and a reference to sprott.com. The opinions, estimates and projections ("information") contained within this content are solely those of Sprott Asset Management LP ("SAM LP") and are subject to change without notice. SAM LP makes every effort to ensure that the information has been derived from sources believed to be reliable and accurate. However, SAM LP assumes no responsibility for any losses or damages, whether direct or indirect, which arise out of the use of this information. SAM LP is not under any obligation to update or keep current the information contained herein. The information should not be regarded by recipients as a substitute for the exercise of their own judgment. Please contact your own personal advisor on your particular circumstances. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds managed by Sprott Asset Management LP. These views are not to be considered as investment advice nor should they be considered a recommendation to buy or sell. SAM LP and/or its affiliates may collectively beneficially own/control 1% or more of any class of the equity securities of the issuers mentioned in this report. SAM LP and/or its affiliates may hold short position in any class of the equity securities of the issuers mentioned in this report. During the preceding 12 months, SAM LP and/or its affiliates may have received remuneration other than normal course investment advisory or trade execution services from the issuers mentioned in this report.
The information contained herein does not constitute an offer or solicitation to anyone in the United States or in any other jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada or the United States should contact their financial advisor to determine whether securities of the Funds may be lawfully sold in their jurisdiction.
The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering or tax, legal, accounting or professional advice. Readers should consult with their own accountants and/or lawyers for advice on their specific circumstances before taking any action.
More Insights from Sprott
Key Trends for 2023 and December Recap
2023 Top 10 Watch List
Fireside Chat: Investing in the Critical Minerals Driving the Energy Transition
Connecting a Few Dots
Gold Mining: Community Relations are the Foundation for ESG