Why Replacing Gold with Cryptocurrency may Result in Costly Errors

The Mistake of Viewing Cryptocurrency as "Digital Gold"

The Vulnerability of Cryptocurrency

According to George Milling-Stanley, the chief gold strategist at State Street Global Advisors, cryptocurrency should not be seen as a substitute for gold. Milling-Stanley believes that the volatility of cryptocurrency exposes it to significant losses, making it an unreliable long-term strategic asset. Comparatively, gold has a 6,000-year history as a monetary asset and has consistently provided a hedge against inflation, weakness in the equity market, and weakness in the dollar. Investing in gold has historically enhanced the returns of a properly balanced portfolio.

The Economic Backdrop for Gold

Although gold has struggled to stay above the $2,000 an ounce mark this year, Milling-Stanley is optimistic about its future prospects. He believes that the current economic backdrop, characterized by slow growth, creates a favorable environment for gold. Historical trends indicate that gold performs well during periods of slower growth. Additionally, the relaxation of Covid-19 restrictions in China is expected to drive increased demand for gold. China, along with other Asian countries such as India, Vietnam, Indonesia, Thailand, and Korea, is a major driver of gold jewelry demand.

The Value of Gold

Last week, SPDR Gold Shares (GLD), the world's largest physically backed gold ETF, had a total asset value of over $57 billion. Gold settled at $1,960.47 an ounce on Friday and has seen a gain of over 7% so far this year. Despite its recent challenges, gold is highly regarded as a hedge against inflation and market uncertainties. Its long history as a monetary asset has proven its worth in enhancing the returns of well-balanced investment portfolios.

Conclusion: Rethinking Cryptocurrency in the Face of Gold's Stability

The ongoing debate surrounding whether cryptocurrency can be viewed as "digital gold" highlights the vulnerability and volatility of cryptocurrencies compared to the long-standing reliability of gold. As George Milling-Stanley, the chief gold strategist at State Street Global Advisors, suggests, it would be a mistake to see cryptocurrency as a substitute for gold in investment portfolios.

The inherent instability and unpredictability of cryptocurrency make it a risky long-term strategic asset, prone to significant losses. In contrast, gold has a rich 6,000-year history as a monetary asset, consistently serving as a hedge against inflation, market weaknesses, and currency fluctuations. Investing in gold historically enhances the returns of a well-balanced portfolio.

The economic backdrop further supports the case for gold as a resilient investment. Despite recent struggles, its performance during periods of slower growth and the anticipated rise in demand due to the relaxation of Covid-19 restrictions in major gold-consuming countries like China, India, and others, indicates promising prospects for gold in the future.

The value of gold is exemplified by SPDR Gold Shares (GLD), the world's largest physically backed gold ETF, which currently holds over $57 billion in assets. Despite challenges, gold has seen a respectable gain of over 7% this year, demonstrating its reputation as a reliable hedge against inflation and market uncertainties.

Impact on New Businesses:

For new businesses, understanding the distinct characteristics of different assets is crucial when making investment decisions. Relying solely on cryptocurrency as a means to hedge against market risks may be ill-advised due to its inherent volatility. Incorporating gold as part of a well-diversified investment strategy can bring stability and potentially enhance returns for new businesses.

The consistency of gold's historical performance and its ability to weather economic uncertainties provide new businesses with a valuable opportunity to safeguard their portfolios against market downturns. By recognizing gold's monetary legacy and embracing its potential benefits, entrepreneurs can position their businesses for long-term success.