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Bitcoin Futures Isn’t Taking Gold’s Shine Away: Goldman Sachs

Last Updated March 4, 2021 5:02 PM
Rebecca Campbell
Last Updated March 4, 2021 5:02 PM

As interest continues to surge for bitcoin, could it soon become the new gold? According to Goldman Sachs, the answer is no.

Throughout 2017, bitcoin’s value has grown to unprecedented heights. However, unlike gold, which is valued $8.3 trillion, bitcoin pales in comparison with a market value worth $282.8 billion. Even with the combined crypto market’s value taken into consideration, at $466.7 billion, it’s still a long way from reaching gold’s standard. As a result, according to the analysts at Goldman Sachs, the digital currency is unlikely to attract investors away from the yellow metal.

Bloomberg  reports that the note reads:

While the lack of liquidity and increased volatility may keep bitcoin interesting, it’s unlikely to convince investors looking for the kind of diversification and hedging benefits which gold has proven to possess over its long history.

The bitcoin community has recently seen the launch of the Cboe Global Markets futures contract, allowing investors to bet on the price of the digital currency. With yesterday completing the first full day of trading, the cryptocurrency saw its value rise above $17,000. Considering it started the year at $1,000, it has come a long way, overcoming several obstacles in its path.

Yet, despite many seeing the futures contract as a way of pushing bitcoin further into the mainstream, Goldman Sachs outlined several reasons why it won’t become a substitution to gold.

Firstly, investor pools are ‘vastly different.’ According to the bank, gold investors are covered by anti-money laundering (AML) and counter-terrorist financing (CTF) regulations. However, when it comes to digital currencies there is little clarity on how they would comply with these rules.

Secondly, the analysts point out is that there has been ‘no discernible gold outflows from ETFs.’ Goldman Sachs state that bullion-backed ETF holdings near the highest since 2013.

Thirdly, ‘market characteristics of gold and cryptocurrencies are vastly different.’ The analysts argue that ‘bitcoin is attracting more speculative inflows’ than gold, adding:

While bitcoin has a mathematically certain total supply, and gold has a finite (but less certain) supply in the earth’s crust, the composition of demand between bitcoin and gold is the key difference.

Many, though, have commented on the digital currency as digital gold. One of which is billionaire hedge fund manager and bitcoin bull, Mike Novogratz. According to the former Fortress manager, he is of the opinion that the digital currency market has the potential to reach $2 trillion by the end of 2018.

Featured image from Shutterstock.