Though many bitcoin investors believe multi-layer scaling solutions such as the Lightning Network (LN) will eventually make BTC a viable payment instrument for the proverbial coffee purchase, most argue that the flagship cryptocurrency’s primary short-term use case is as “digital gold.” However, an equity analyst at one of the world’s most respected investment research firms said that he doesn’t expect bitcoin to make a noticeable dent into the yellow metal’s market share.
Writing in Morningstar Research Services’ short-form investment commentary series, the “Morningstar Minute,” equity analyst Kristoffer Inton noted that if bitcoin did begin to replace gold as a safe haven asset, it would represent a “seismic shift” in the investment case for the precious metal as 40 percent of gold demand comes from investors.
“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.”
However, Inton, who has been at Morningstar since 2013, wrote that the firm has created a proprietary framework for evaluating assets as stores of value and found that cryptocurrency does not score well on this rubric, leading him to continue recommending long-term investments in certain gold stocks, including Goldcorp.
“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.”
Nevertheless, cryptocurrency bulls maintain that bitcoin does have a solid investment thesis as “digital gold” because, although it is currently quite volatile, it possesses many of gold’s attractive features (e.g. liquidity and scarcity) while also alleviating some of its drawbacks, such as its lack of portability and impracticality for payments.
Billionaire investor Peter Thiel, for instance, said earlier this year that he is long on bitcoin, even if it never matures as a payment instrument.
“I would be long bitcoin, and neutral to skeptical of just about everything else at this point with a few possible exceptions. There will be one online equivalent to gold, and the one you’d bet on would be the biggest,” he said. “I would be long bitcoin, and neutral to skeptical of just about everything else at this point with a few possible exceptions. There will be one online equivalent to gold, and the one you’d bet on would be the biggest.”
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Last modified: May 20, 2020 5:19 PM UTC