World Gold Council – Cryptocurrencies are no substitute for gold

News Peter Baumann, financial reporter – 27.04.2018

The stellar ascent of the so-called cryptocurrencies in 2017 even keeps the experts of the World Gold Council (WGC) busy. In its recently published annual review, the WGC stresses that all in all cryptocurrencies are no substitute for gold.

Parabolic price increase of Bitcoin in 2017

Bitcoin’s parabolic price rise in 2017 and its subsequent sharp correction has been the a major finance story in the past twelve months. While gold’s performance was a solid 13%, it was a mere fraction of the 13-fold increase of Bitcoin over the year. Some commentators went as far as to claim cryptocurrencies could replace gold. Even the WGC admits that cryptocurrencies could become part of the financial system. However, at the end of day, the differences to gold are enormous and irreconcilable.

Bitcoin is not attractive as store of value

Although Bitcoin shares characteristics with gold, such as being limited, independent of governments and a potential substitute for pure paper currencies, the fundamental opposites to gold outweigh by far. Gold is a classic, even tangible commodity money and can look back on a 6.000-year success story. In addition, the precious metal has a broad spectrum of basic applications and uses. In contrast to gold, it is not possible to touch and hold the Bitcoin in one's hand; it exists only immaterially. The WGC concedes that the underlying blockchain technology of Bitcoin may be interesting to the financial industry and trade. But in the end, Bitcoin fulfils an essential function of money such as the function as means of payment only to a very limited extent. Not to mention the function as store of purchasing power; due to the extreme volatility of the self-proclaimed currency, Bitcoin is not suitable to serve as a real store of value. In this context, the President of Deutsche Bundesbank, Jens Weidmann, identified the reason for the cryptocurrency’s volatility at a symposium in Frankfurt in mid-February. He said: "The price of Bitcoin is gyrating as much as it is because there's no value basis – unlike, say, a gold coin, crypto tokens have no intrinsic value.”

All in all, the WGC experts conclude that due to its unique characteristics and qualities gold remains an attractive financial instrument for the general public; even in an increasingly digital world. Gold is and remains money. In contrast to the precious metal, crypo tokens are – according to Weidmann – more of a speculative plaything, where the investor risks to lose all of his investment. 

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