Goldman Sachs: Bitcoin is Not Causing A “Mass Exodus” From Gold


Goldman Sachs has argued that the meteoric rise of Bitcoin this year has not stifled the demand for gold.

Commodities investors have feared that the rocketing value of bitcoin would take the shine off gold. However, Goldman said that investors in bitcoin and gold had significant differences.

For one, investors of gold who make use of exchange-traded funds (ETFs), futures or commodities indices are automatically covered by counter-terrorist financing and anti-money laundering regulations, which are “baked in” to processes in these markets already.

Jeffrey Currie, a Goldman analyst, said that there is still “very little clarity” regarding the process of how trading in cryptocurrencies could be compelled to comply with these regulations. He stated: “This creates huge regulatory hurdles for professional investors wishing to enter these markets.”

Currie added that there had been no evidence regarding a “mass exodus” from gold, with the total known gold ETF holdings even reaching their highest level ever since mid-2013 recently.

Also, market characteristics of cryptocurrencies and gold are “vastly different,” said Currie. He added: “While bitcoin has a mathematically certain total supply, and gold has a finite (but less certain) supply in the earth’s crust, even cursory examination shows very different market dynamics.

“We believe the composition of demand between bitcoin and gold is the key difference in the recent price action. In our view bitcoin is attracting more speculative inflows relative to gold.”

Bitcoin has demonstrated lower liquidity and much higher volatility as compared to gold. Its market capitalisation is about $245bn (£183bn) compared to gold at $8.3 trillion.

Currie said: “While the lack of liquidity and increased volatility may keep bitcoin interesting, it is unlikely to convince investors looking for the kind of diversification and hedging benefits which gold has proven to possess over its long history.”

Also, another hurdle for bitcoin is setting whether it is a fund, security, or commodity. “We firmly believe it is a commodity, as bitcoin has no liability that all securities have by definition,” said Currie.

However, there is no denying that exchanges are under pressure because of the high levels of trading.

On Tuesday, major exchanges Bitfinex and Coinbase reported partial outages.

Coinbase said that it was experiencing “minor” service outage while in a tweet, Bitfinex said that it was under “heavy” distributed denial of service and that its programming interface was down.