Bitcoin is not the new gold, according to Goldman Sachs analysts who have released a report comparing the cryptocurrency outlook to that of the metal of Midas.
"Precious metals remain a relevant asset class in modern portfolios, despite their lack of yield," Goldman Sachs analysts Jeffrey Currie and Michael Hinds wrote in a recent report. "They are neither a historic accident or a relic. Looking at properties such as durability and intrinsic value, they are still relevant even with new materials discovered and new assets emerging, such as cryptocurrencies."
This year Bitcoin has been on a phenomenal rollercoaster ride. Last Friday Bitcoin hit a record high of $5,856. The total value of all Bitcoin in circulation has hit $97 billion, and Bitcoin has risen 480% year to date.
Gold has always been considered a safe haven asset, and recently Bitcoin has been exhibiting gold-like properties.
Bitcoin Is Similar to Gold
"Bitcoin has some very similar characteristics to gold," said Trevor Koverko, CEO of Polymath.
They're both safe haven assets, and with both, supply expands slowly and in a predictable fashion. Both are mined and require extensive resources.
"But Bitcoin's potential is much broader and exciting than gold," Koverko said. "In that sense, it is gold 2.0."
Goldman Sachs Stance on Bitcoin Is Still Unclear
Despite the recent comment from analysts, Goldman Sachs stance on Bitcoin is still unclear. There have been reports that the bank is now considering a trading operation that focuses on Bitcoin.
On October 3, Goldman Sachs CEO Lloyd Blankfein tweeted: "Still thinking about #Bitcoin. No conclusion - not endorsing/rejecting. Know that folks also were skeptical when paper money displaced gold."
Bitcoin Gold Is Scheduled on October 25
The crypto community has something to look forward to in the next few weeks. There will be a shock in the market as there are two hard forks scheduled -- one for Bitcoin Gold on October 25, then a second hard fork, Segwit2x or (BTC1), will occur around mid-November.
Nolan Bauerle, CoinDesk director of research, explained the Bitcoin-gold analogies in mining and limited supply have been made many times.
Bauerle says: "But being the 'new gold' requires much more than these two analogous qualities," he said. "Some other metals are rarer and more difficult to extract as it is. What makes gold, gold is its behavior as a store of value - its most important above ground form is held in bank vaults around the world. While Goldman might be correct about bitcoin vs. gold today, their analysis is without vision as to whether bitcoin's behavior can echo the rise of gold as a store of value."
Bauerle explained this quality of gold only came about after gold survived the rise of fiat paper money and the end of gold's use as a medium of exchange. "Bitcoin has fought to become an important store of value as it survived the rise of other cryptocurrencies based on Bitcoin's open-source -- free-to-copy -- code, forks, as well as a price crash in 2013," Bauerle added. "In this way, Bitcoin's survival and adaptability make the case for it to be an important store of value. Every day Bitcoin survives and rises, its story rhymes more and more with gold."
Some agree with the Goldman Sachs analysts. "Goldman Sachs analysts are correct," said Edward Stringham, president of the American Institute for Economic Research and Professor of Economic Organizations and Innovation, at Trinity College. "Bitcoin is not the next gold. Neither General Motors and Studebaker were the next Ford, just different with some potential disadvantages and advantages. Gold will always retain value for jewelry and industrial uses and will not have the possibility of collapsing in value to zero as any electronic asset can. If Bitcoin is outcompeted by another cryptocurrency like Ethereum, it could go the way of an investment in Excite.com. Gold may be at risk of physical theft but not hacking."
Stringham explained that crytocurrencies including Bitcoin have tremendous potential.
"One can send them around the globe with relative ease and settle accounts on the blockchain rather than having to ship and store physical metals," he said. "Gold can also be mined so the long run supply can slowly increase, but not so with Bitcoin, the value of Bitcoin would continue increasing if demand rises and the supply is fixed"
For example, in the 1990s one could have predicted that Netscape or American Online would reign supreme forever, but Google (GOOG) or Facebook (FB) had yet to be invented. Right now we don't know what, if any, cryptocurrency will succeed but they have the possibility of connecting everyone around the globe at relatively low transaction costs.
"Right now Venezuelans have to deal have to deal with their government inflating money and prices by 800% per year," Stringham added. "We see episodes like this throughout history in first and third world countries. My guess is that holding and transacting in gold in Venezuela is difficult. But a future with more crytocurrency use could allow people to more easily opt out of their local currency or transfer their liquid assets to investments abroad."
Cryptocurrency could become attractive for anyone seeking to make transnational transactions or seeking to avoid problems associated with government manipulation or control of money.
Believe it or not, these cryptocurrencies actually exist:
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