-Analysis-
LIMA — Both gold and the cryptocurrency bitcoin have been reaching record prices of late, with gold rising to over $2,330 per ounce (on April 8, compared with around $2,100 in early March) and bitcoin at almost $67,000 (compared with around $25,000 in early October).
Within days of the next bitcoin halving — an automatic event every four years when the reward for mining bitcoins is halved to keep a check on supplies — investors may wonder whether it is safer to plough their money in traditional gold, or the futuristic bitcoin.
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The U.S. Securities and Exchange Commission (SEC)’s January approval of bitcoin ETFs (exchange-traded funds that can include bitcoin), will make cryptocurrencies more popular as a decentralized digital asset, especially among investors keen to diversify portfolios and reduce exposure to fiat money (government-issued currency that is not backed by a physical commodity), said Denise Cinelli, chief operating officer of the exchange platform CryptoMarket.
In particular this means institutional investors, which polls suggest are willing to invest up to 5% of their capital in bitcoin or related assets, said Jaime Aritio, commercial manager of the Peruvian investment bank Renta 4 SAB. He qualifies this as a “moderately speculative” investment destined for long-term value growth rather than short-term trading.
Banks over crypto
Trading is of more interest to small or individual investors, while the spread of crypto-credit and debit cards in Latin America, expected soon, will increase constant use as consumers will be able to buy spending cryptocurrencies rather than money in a bank.
Cryptocurrency firms are bound to suffer from scandals like those of the FTX founder
So as bitcoin becomes more familiar and accepted, and with evolving blockchain technologies and growing institutional interest, its very use will help consolidate its asset status, Cinelli said.
Aritio cautions that bitcoin still lacks the utility of “gold, the dollar or the euro to safeguard capital and savings against inflation.” He adds that the idea of replacing “the banking system with something ethereal is romantic in my opinion, I don’t see it happening. Real people save in a bank.”
He said banks do not yet to accept the crypto-narrative of technological innovation replacing their “fiduciary capability,” or credit and trustworthiness, as banks are regulated entities with a firm place in the legal system. That is not yet the case with cryptocurrency firms, which are bound to suffer from scandals like those of the fallen FTX founder Sam Bankman-Fried, who was 25 years in prison for fraud.
But the decisive element in all digital transactions, Aritio said, may be blockchain — which acts as a minutious record of all transactions — which is already of value to standard banking. Banks have been “working on tokenizing their distribution chain a little, which will eventually increase the level of traceability and security in all types of transactions,” he said, referring to the transformation of assets into digital equivalents that can be bought online.
Looking for a universal solution
Cinelli noted that cryptocurrencies are “liquid assets that can be bought, sold and traded on the global markets, 24 hours a day, due to blockchain,” while gold is more difficult transport.
Yet Sergio Tricio, a financial adviser with Patrimore, stressed that bitcoin and gold are different instruments, and people buy them for reasons beyond profit.
There is no clear, easy choice, no universal solution.
While bitcoin’s volatility and risks make it unattractive to savers or conservative investors, gold itself is a refuge not a fast-track path to profit, said Matías Díaz, an investments analyst with online brokers BeFX. When the economy is doing well, as recent figures indicate for the U.S., and interest rates are unlikely to fall, safe assets like gold lose some of their luster, he said, adding that the price of gold should therefore ease.
As with all investment choices, there is no clear, easy choice, no universal solution to the profit conundrum. Perhaps the best indicator as always, is to be clear in your mind about your objectives and about how much you love risk.
