Cryptocurrencies cannot replace gold as an investment vehicle, and if we compare them with something, it is more likely to be copper, said Jeff Currie, head of commodities at Goldman Sachs, in an interview with CNBC. Thus, he rejected comparisons between Bitcoin and gold. According to him, digital currencies are pro-risk assets.
In his opinion, the risks associated with cryptocurrencies mean, that their value is different from safe assets like gold. Although they hedge against inflation. His comments came after the recent drop in Bitcoin’s price to around $ 36,000 today. Other assets also fell in value.
Inflation is rising as the global economy recovers from the effects of the Covid-19 crisis. As central banks maintain historically loose monetary policies and demand outstrips supply in several ways.
Gold and cryptocurrencies were viewed as hedges against price increases. And in some cases, crypto bulls viewed Bitcoin as a modern replacement for precious metal bullion. At the same time, as we can see, Jeff Currie stated that the comparison of cryptocurrency with gold is incorrect.
Inflation hedging aims to protect the investor from a drop in the purchasing power of money due to rising prices. Currie believes that Bitcoin, like oil and copper, is the best defense against “good inflation” that comes from increased demand. By comparison, gold hedges against the “bad inflation” caused by the supply cut.
The expert emphasized that the first cryptocurrency correlates with the business cycle, since it associated with its own payment system.
Therefore, the researcher believes that digital currencies do not replace gold, but rather are digital analogs of copper. Earlier, Currie also stated that it is too early for Bitcoin to compete with the precious metal, as it is vulnerable to falling demand and savings in favor of another, more advanced cryptocurrency.
Nevertheless, whichever category Bitcoin comes closer to, it is the most profitable asset of the last decade.
In addition, there is a lot of risk in traditional finance and investments when it comes to investment instruments during periods of high volatility.
And Currie called the best defense against inflation, commodities with real use, since they depend on demand.
Opposing opinions on Bitcoin and gold
As a reminder, JPMorgan analysts said that the first cryptocurrency became a cyclical commodity and cannot act as an alternative to the precious metal as a hedge.
And in one of the world’s largest investment company BlackRock noted that the status of gold as insurance against inflation exaggerated.
At the end of May, Goldman Sachs recognized Bitcoin as an asset class. Then the bank reported on the growing demand for cryptocurrencies among institutional investors and asset managers.
Earlier, Goldman Sachs was the first among the largest US investment banks to create a department for cryptocurrency trading. The new department has already successfully traded two types of Bitcoin-related derivatives.