Morningstar Analyst: Bitcoin and Other Digital Assets will Never Replace Gold
Analysts from investments ratings firm Morningstar have stated that Bitcoin and other cryptocurrencies will never be a threat to gold as a store of value.
Bitcoin Outperforms Gold on Almost All Fronts
Many in the cryptocurrency space believe that digital assets could represent the ultimate store of value.
They contend that the likes of Bitcoin represent a sound form of money than gold, which has long been considered the best, true safe-haven asset. Several pro-bitcoiners have highlighted the asset’s true scarcity, the fact it can be stored and divided much more easily than gold, and the fact that it can be secured in such a way that no government entity can confiscate it.
However, for others the notion of cryptocurrencies as a store of value is ridiculous. Perhaps the most common response to such a statement is: “How can something capable of making such dramatic price moves over a short period really be used as a safe-haven asset?”
Supporting the naysayers’ view are Kristoffer Inton and colleagues from Morningstar investment analysis firm. According to MarketWatch, they have created a system, which they use to allocate grades to various asset classes.
Going off their criteria, gold easily beats Bitcoin and other cryptocurrencies:
“In order to assess the threat, we’ve created a framework to grade any asset class’s viability as a safe-haven by focusing on liquidity, functional purpose, scarcity of supply, future demand certainty, and permanence. Through this framework, we conclude that cryptocurrency does not and will not challenge gold as a safe-haven asset class.”
In the MarketWatch article, the author continues to state that Bitcoin is much worse than the likes of Mastercard and Visa for volume of transaction possible per second. This is given as a reason why there is no “functional purpose” for Bitcoin and other digital assets.
However, it is completely unfair and totally redundant to comment on Bitcoin’s ability to replace gold as a store of value in relation to the number of transactions per second it can perform.
The ability to securely transmit any amount of Bitcoin around the globe completely trumps gold’s usability. Its true scarcity makes it a much more desirable form of money too. No one can invent a state-of-the-art drill to tap into the enormous deposits of Bitcoin at the centre of the earth as they can with gold, for example.
The only thing that Bitcoin really falls down on is its lack of historical precedent. This is completely understandable given that we are only just coming to the end of the first years of Bitcoin’s existence, versus hundreds of millions of years that gold has been around for.
However, Inton did conclude by stating that if the impossible were to occur and Bitcoin did start to replace gold as a store of value, the damage done to the price of gold would be immense:
“If cryptocurrency were to displace gold’s investment case, the implications for gold prices would be devastating. 40% of gold demand relates to investment, so a shift in investment from gold to cryptocurrency would be a seismic shock.”
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