2020 was a red-banner year for Bitcoin, the world’s biggest cryptocurrency. A week into 2021, its price topped $37,000 (€30,265), more than quadrupling its value in the past year. In recent weeks, the Grayscale Bitcoin Trust gained over $3 billion (€2.45 billion), according to a note published Tuesday by investment bank JPMorgan. Gold, meanwhile, saw some $7 billion in outflows.
“Bitcoin’s competition with gold has already started in our mind,” the JPMorgan strategists wrote.
“Considering how big the financial investment into gold is, a crowding out of gold as an ‘alternative’ currency implies big upside for Bitcoin over the long term,” they said.
So is Bitcoin the new gold? The answer is complicated, especially after a gold rally earlier this week. Value of the precious metal climbed to over $1,900 an ounce on Monday, the highest price in almost two months. At the same time, the cryptocurrency has continued to fluctuate.
Since the outbreak of the coronavirus, governments and central banks have pumped billions in stimulus into their pandemic-ravaged economies. This has drawn investors toward both gold and the cryptocurrency as they seek investments safe from potential inflation.
Bitcoin’s coming of age
For fans of gold as an investment, its allure is obvious. The precious metal’s real-world application is visible all around us in the form of coins, jewelry and other decorative items, and it has a long history to back it up. Bitcoin skeptics have repeatedly pointed to the cryptocurrency’s lack of inherent value as one of its biggest weaknesses.
Gold is a versatile and unchanging asset that many investors view as less risky than stocks, for instance. The price of Bitcoin would need to increase fivefold — to $146,000 a coin — to match the $575 billion global valuation of private gold wealth held in gold bars, coins or exchange-traded funds, JPMorgan said.
“Anything ultimately becomes a store of value because everyone agrees it to be so,” Joseph Edwards, head of Research at Enigma Securities told DW. “Millennials and Gen-Z look at Bitcoin, see something that has gone a decade, has held up technically, has kept bouncing back from all market-related shocks to it, and are duly enamored.”
A December survey from international financial advisory deVere Group showed that over two-thirds of the company’s millennial clients felt Bitcoin was preferable to gold as a safe-haven asset.
“Bitcoin could be dethroned within a generation as millennials and younger investors, who are so-called ‘digital natives,’ believe it competes better against gold as a safe haven asset,” wrote deVere Group CEO Nigel Green.
It’s ‘not going away’
While Bitcoin always had some of the properties of money, like being portable and divisible, it has taken time, Edwards says, for it to show it has other qualities, like durability. It took 12 years, but the cryptocurrency has shown it is durable, both “in terms of the network being invulnerable to attack, and in…