Kanishka Sukumar, a 24-year-old consultant in midtown Manhattan, holds about a third of his wealth in bitcoin. He represents a new generation of “gold bugs” who question the stability of paper currency or seek better ways to protect savings, according to The Wall Street Journal.
One in five bitcoin users hold the cryptocurrency since they don’t want the government or banks controlling their money, according to a survey of 3,500 bitcoin users. That was the second biggest reason the survey respondents hold bitcoin. The main reason, according to the survey from data provider CoinDesk, was to own bitcoin as an investment.
Since bitcoin’s price volatility has eased, it has become a more viable store of wealth.
Michael Novogartz, a hedge fund manager who owns bitcoin and left Fortress Investment Group LP last fall, calls bitcoin an “I don’t trust people” purchase. He owns only one ounce of gold, which was a gift, compared to a “significant” amount of bitcoin. He said bitcoin will attract people who otherwise would buy gold.
Bitcoin’s price volatility fell below gold’s for 28 straight days in April, the longest period ever. The volatility for bitcoin also fell below the Japanese yen, another flight-to-trade currency, according to FactSet and CoinDesk data.
Bitcoin’s popularity is also due to its quick, anonymous transactions. The number of bitcoin wallets doubled to more than 12 million in 2015, according to CoinDesk.
Bitcoin has also drawn traders seeking to profit from its volatility. CME Group, a derivatives marketplace, noted this month it is developing a bitcoin spot price index. The New York Stock Exchange tracks the price.
One user, 25-year-old Murat Akdeniz, a Cornell University business student, has been doing less bitcoin trading, on account of its volatility. He said it makes more sense to buy and hold the currency.
Bitcoin’s popularity is also due to the younger generation’s trust in technology over governments, Akdeniz said. Should China sell its gold reserves, the bitcoin price won’t be negatively impacted, he added.
Economic uncertainty is another reason people hold bitcoin, particularly with recession fears roiling markets and central banks cutting interest rates.
Gil Luria, head of technology research at Wedbush Securities, said bitcoin has become a store of value for individuals concerned about other classes of trade. He said gold was once the only refuge for persons with grave concerns about the monetary system and the global economy.
During last year’s Greek crisis, investors seeking safety flooded into both bitcoin and gold, according to bitcoin exchanges and traders.
Brian Estes, a venture capitalist in St. Louis, said bitcoin is a hedge against an economic collapse. He compared holding bitcoin to having a hedge against banking systems and the ATMs not being functional.
There are skeptics about bitcoin’s future. It faces regulatory hurdles worldwide. It has suffered from volatility. It has also been used on the black market for illegal drug purchases.
There are also those who are more bullish about blockchain, the technology that supports bitcoin, than bitcoin.
Peter Grosskopf, chief executive at Sprott Inc., said the blockchain has the potential to enhance gold transactions, but he doesn’t see any tangible value in bitcoin. He said his firm will invest in the digitization of gold.
The gold market, for its part, is much larger than bitcoin. The total value of the bitcoin market is estimated at $6.8 billion, according to Blockchain, the bitcoin wallet. The OTC gold market trades between $150 billion and $240 billion daily, according to the World Gold Council. Holdings in gold-backed ETFs are nearly $80 billion.
As bitcoin becomes established, Murray Stahl, chief investment officer at Horizon Kinetics, which manages $6 billion in assets, plans to purchase more cryptocurrencies instead of gold.
Horizon Kinetics holds shares in Bitcoin Investment Trust, which is the first publicly-traded bitcoin investment vehicle.
Stahl’s own exposure to bitcoin is between 0.5% and 1% in various portfolios, compared to 3% to 4% in gold-related securities. He said he not about to give up on gold entirely, but in the next 10 years, he believes there will be a cryptocurrency alternative.
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