When billionaire investors like Ray Dallio and Stanley Druckenmiller start buying gold, it is time to start paying attention. Druckenmiller reportedly holds 20% of his portfolio in gold as a hedge against inflation, and Dallio’s hedge fund invested more than $400 million in gold in the second quarter of 2020.
Gold’s status as a safe haven in times of turmoil remains undiminished. It recently rallied to an all time high of $2,070/oz before pulling back to $1,900/oz as investors scurried for safety due to massive central bank money printing in response to the Covid-19 lockdowns.
Hedging against market uncertainty with gold is what conventional wisdom would dictate as a safe-haven approach and historically this has proved a successful strategy. But the old-school safe haven of gold is being challenged by a newer digital alternative: bitcoin.
Bitcoin’s correlation to gold has tightened in recent months, a sign that it’s a possible alternative, or complement, to investing in the precious metal. Both have proved helpful to investors, and both have been harnessed as a speculative investment at some points and a safe-haven asset at others.
And when big-name institutions including trillion-dollar asset manager Fidelity, Nasdaq-listed MicroStrategy and payment giants Square and Paypal make moves that involve buying, holding and accepting bitcoin, investors should also start to pay attention. This increased interest by the “smart money” has driven an 80% surge in bitcoin prices since the start of the year, relative to the 29% jump in the gold price.
Sean Sanders, CEO and founder of Revix (backed by JSE-listed Sabvest), explains: “Returns and price volatility aside, bitcoin and gold have important differences. These range from something as simple as tenure, or how long each has been around, to the very nature of these assets themselves.
“At Revix, we believe it’s incredibly important to diversify an investment portfolio across asset classes and geographies. We enable our customers to buy and sell both bitcoin and Pax Gold, which is a gold token that is 1:1 backed by physical gold.”
Bitcoin vs Gold – the key differences
Digital vs. Physical
One of the most striking differences between gold and bitcoin is that while the precious metal represents a physical object, bitcoin is entirely digital.
Circulating supply and growth
The current and maximum supply of bitcoin is known. More specifically, the bitcoin network caps the total number of digital coins at 21 million, and to date, only 18.5 million have been mined. No-one really knows how much gold lies above ground, though it’s supply is also limited.
Gold has a far longer track record than bitcoin, as it was first used more than 2 000 years ago. Bitcoin, on the other hand, has only been in existence since the first block was mined in January 2009.
While bitcoin’s returns surpass that of gold over the majority of comparable time periods, its volatility accentuates…
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