Back in September, alternative investment firm iTrustCapital reported doing brisk business at a time when the stock markets were floundering. iTrustCapital, the leading investment platform for alternative assets including cryptocurrencies like bitcoin and gold, said it had completed more than 10,000 transactions so far in the year with the majority coming from investors moving their 401(k) and IRA retirement accounts from traditional securities such as stocks and bonds to alternative investments like Bitcoin and gold.
The investment platform cited frustration with traditional financial institutions coupled with a growing lack of engagement as the biggest reasons why investors have been jumping ship.
But Bitcoin, a new digital currency built on blockchain technology, is emerging as the biggest winner in the latest shift, with investors now dumping the yellow metal for digital gold.
Perhaps it’s not by coincidence that Bitcoin has shot to record highs at a time when institutional dollars have been fleeing gold.
Over the past three months, Bitcoin has been taking out new highs, surging 125% and currently hovering around its all-time high of $23,400. In contrast, gold has been steadily losing momentum after hitting its historical high of $2,075 per ounce in August.
The Grayscale Bitcoin Trust (GBTC) has recorded inflows of almost $2 billion since October, compared with outflows of $7 billion for gold ETFs, according to JPMorgan. GBTC now boasts $8.9B in assets under management (AUM).
What we are witnessing could be the early innings of a rotation that could have a profound impact on the bitcoin and gold markets with a debate raging on whether the world’s largest digital currency can soon rival bullion as a portfolio diversifier and an inflation hedge.
Bitcoin or Gold?: The Big Question for Investors
The digital currency has become a hot favorite for a motley crew of exotic quants, speculative pros and retail players, while traditional investors have tended to remain on the sidelines. But that appears to be changing with institutional investors such as Guggenheim Partners LLC, Paul Tudor Jones and Stan Druckenmiller lately jumping into the Bitcoin bandwagon.
Indeed, JPMorgan Chase & Co has reported that smaller funds have been steadily selling their gold ETFs and buying Bitcoin. Funds have sold nearly 100 tons of gold worth some $5 billion since early November at a time when Grayscale Bitcoin Trust, the preferred vehicle for institutional investors, has seen its value double in dollar terms.
Even Millennials now favor Bitcoin over gold
As former commodities hedge fund manager Jean-Marc Bonnefous has noted, gold was the leading safe haven of the past world and baby boomer generation but is now being replaced by automated assets like Bitcoin.
A recent global survey by deVere, one of the world’s largest independent financial advisory and fintech organizations, has revealed that millennials really do prefer bitcoin to gold as a safe-haven asset.
In the deVere survey, more than two-thirds (67%) of the 700+ millennial respondents said that they think Bitcoin simply is a better safe haven compared to gold.
According to de Vere: “From Ancient Egypt onwards gold has always had immense value and has long been revered as the ultimate safe-haven. It’s always been a go-to asset in times of political, social and economic uncertainty as it is expected to retain its value or even grow in value when other assets fall, therefore enabling investors to reduce their exposure to losses. But, as this survey reveals, Bitcoin could be dethroned within a generation as millennials and younger investors, who are so-called ‘digital natives’, believe it competes better against gold as a safe-haven asset.”
A big reason why Bitcoin is winning over gold is due to better transparency.
With Bitcoin, all transactions can be viewed and verified on the blockchain whereas gold is kind of like a blackbox whereby investors have to rely on the custodians to learn anything about inflows and outflows into the market.
Gold Could Suffer for Years
JPMorgan is one of the growing number of Wall Street giants that are turning bullish on Bitcoin’s future prospects.
Indeed, JPM has predicted that the rotation from gold to Bitcoin is only going to gather momentum, meaning gold could be in the dog house for years.
According to the bank’s quantitative strategist Nikolaos Panigirtzoglou:
“The adoption of bitcoin by institutional investors has only begun, while for gold its adoption by institutional investors is very advanced.”
Not everybody is sold on the Bitcoin-is-better-than-gold theme though.
Sanford C. Bernstein strategist Inigo Fraser-Jenkins says there’s room for both assets, especially if inflation and debt start getting out of hand.
Plurimi Wealth LLP’s Chief Investment Officer Patrick Armstrong notes that gold also has a long history as a store of value that Bitcoin simply can’t match, not to mention the ever-present risk of a central-bank-backed, digital currency supplanting the leading crypto.
Bitcoin remains far more volatile than gold, a risk factor that has kept mainstream investors at bay. However, the upside potential for Bitcoin could be huge if the developing trend truly takes off considering the gold market is about 30x bigger than Bitcoin’s.