While both assets fell sharply in the past year, spot gold is up marginally year-on-year by about 0.23%. Comparatively, Bitcoin has plunged by more than 60%.
Goldman Sachs has suggested that Gold will outperform Bitcoin long term owing to its drivers. The bank noted on Monday that the precious metal provides a better way to diversify one’s portfolio than the crypto asset.
According to the bank, gold is less likely to be affected by tighter financial conditions like Asian consumer buying, central bank monetary demand, safe-haven investments, and industrial applications. Again, gold has non-speculative use cases, unlike Bitcoin.
The Goldman Sachs analysis is interesting, given that the firm announced in January that Bitcoin could soon surpass Gold. Goldman Sach analyst Zach Pandl announced that Bitcoin will seize the market share from Gold in 2022 as mainstream adoption increases. At the time, Bitcoin had a market capitalization of $700 billion and a 20% market share. On the other hand, gold was worth $2.6 trillion.
Also, due to their price movement correlation in the past, some have termed Bitcoin as digital gold. However, the bank explained why it expects gold will outperform Bitcoin in the long term.
Why Gold Will Outperform Bitcoin
While both assets fell sharply in the past year, spot gold is up marginally year-on-year by about 0.23%. Comparatively, Bitcoin has plunged by more than 60%.
According to Goldman Sachs, Bitcoin is like a typical growth stock with high risk, with the only chance to earn revenue being when you sell off some of your holdings. It noted that Bitcoin’s value proposition is futuristic and solves no immediate problems, making it a more highly volatile and speculative asset than Gold.
“Bitcoin’s volatility to the downside was also enhanced by systemic concerns as several large players filed for bankruptcy,” it stated. Players like 3AC Capitals, Terraform Labs, Celsius Network, Voyager Digital, BlockFi, and FTX filed for bankruptcy this year, wiping out investor confidence in the cryptocurrency market.
Unlike Bitcoin, the fear of dollar debasement remains a key argument for gold bulls. It is also the traditional hedge against inflation and may benefit from additional macro volatility. “Gold may benefit from structurally higher macro volatility and a need to diversify equity exposure,” the banknote added.
At the time of writing, spot gold was $1,804 an ounce, and Bitcoin was $17,116.
An experienced writer with practical experience in the fintech industry. When not writing, he spends his time reading, researching or teaching.
