Gold and cryptocurrencies: what they have in common

As early as 2009, when the very first – and still leading – cryptocurrency Bitcoin was introduced, comparisons were quickly drawn with gold. Soon after, Bitcoin and Co. were being presented as the digital equivalent of gold, sometimes even as a superior alternative to the precious metal. However, the analogy of cryptos and Bitcoins conjured up at the time was rooted in something of a soldier-of-fortune mentality. It was, seemingly, just as easy to make a fortune with Bitcoins as it had been for many a gold prospector in the 19th century. However, cryptos and gold have much more in common.

Similarities in production and independence from financial systems

Even the ways of extraction for gold and cryptos are similar. Production for both asset classes is extremely complex and expensive. Also, an important difference to fiat currencies is that their quantities are limited and finite. Neither gold nor cryptos can be reproduced at will. Moreover, both asset classes function independently of financial systems and are insensitive to national inflation rates.

Fundamentally different roles within investor portfolios

For millennia, gold has proven itself time and again as a store of value and inflation protection. Quite apart from the fact that cryptos have yet to stand the test of time in this respect, they only exist digitally. To access them, owners are dependent on a functioning internet connection. Moreover, digital currencies have no industrial or medical use, while without gold, many applications, especially modern ones like mobile communication, are hardly conceivable. The most significant difference between gold and cryptos is their benefit for investors: while an addition of gold has a portfolio-stabilising effect and a proven positive influence on the risk-adjusted return of a portfolio, cryptos increase its volatility considerably. They are therefore more likely to be seen as potential, albeit very risky, return drivers.

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