Investors can add Gold and Bitcoin to their portfolios as the two assets inhabit different ends of the investment spectrum
Goldman Sachs analysts believe Gold and Bitcoin can coexist in a portfolio as the two assets offer varying values to investors. The analysts made this assertion in a research note obtained by CoinDesk yesterday.
According to the analysts, Bitcoin won’t engulf Gold’s market cap anytime soon. The analysts stated that they don’t see either asset cannibalising each other in the current financial clime of dollar weakness and low or negative interest rates. They maintained that there is enough room for both assets to feature in an investor’s portfolio.
Bitcoin has been described in some quarters as the digital Gold and could displace the precious metal as the primary store of value. However, some analysts feel that the two assets can coexist.
Goldman Sachs’ head of commodities research Jeff Currie had previously said that Bitcoin does not pose an existential threat to Gold. The analyst had referred to Bitcoin as a hedge against retail inflation as the cryptocurrency was widely adopted by retail investors initially.
The investment bank’s analysts explained that Bitcoin was the more risk-on investment vehicle due to its massive volatility, while Gold remained the “defensive” asset for the investors. Bitcoin is becoming more popular amongst investors due to its legendary volatility, the analysts added.
Gold underperformed last year, while Bitcoin surged by nearly 500%. The analysts attributed Gold’s underperformance last year to people moving their funds to riskier asset classes. However, they didn’t mention if the riskier asset classes included Bitcoin and other cryptocurrencies.
In December 2020, JPMorgan strategists said that Bitcoin’s growing adoption was coming at the expense of Gold. The strategists noted that while there was a decline in funds invested into gold exchange-traded funds (ETFs), Bitcoin gained billions of dollars from retail and institutional investors.
The Goldman Sachs analysts did not compare Gold to Bitcoin directly. However, they highlighted a strong correlation between the cryptocurrency and some non-precious metals like Zinc and Copper. They said, “Since the end of last year, Bitcoin has displayed a pretty tight correlation with base metals as both act as risk on inflation hedges with appealing long term growth stories”.
The leading cryptocurrency raced to a new all-time high above $58,000 last week but experienced a massive sell-off during the weekend. BTC tanked below $45,000 but is recovering and trading above $50,000 at the moment.