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Institutional investor demand for Bitcoin (BTC) has recently driven the crypto’s price upward until it broke past $20,000 and set a new all-time high above $24,000. There are even speculations that the cryptocurrency might be slowly replacing gold as the go-to asset against inflation.
However, Goldman Sachs’ head of commodities research Jeff Currie believes that both gold and Bitcoin can co-exist, Bitcoin.com reported. He called BTC “the retail inflation hedge” and likened it to copper but also added that the crypto’s “rising popularity as an existential threat to gold’s status as the currency of last resort.”
“Gold’s recent underperformance versus real rates and the dollar has left some investors concerned that bitcoin is replacing gold as the inflation hedge of choice,” Goldman Sachs strategists wrote in a note on Thursday. The precious metal’s recent price decline is attributed to the investment strategy adopted by investors in the face of coronavirus-related inflation including the purchase of “riskier assets” such as cryptocurrency.
However, Goldman Sachs’ team is not fully convinced that Bitcoin will be replacing gold anytime soon. “We do not see bitcoin’s rising popularity as an existential threat to gold’s status as the currency of last resort,” the strategists wrote. “We do not see evidence that bitcoin’s rally is cannibalizing gold’s bull market and believe the two can coexist.”
Some analysts disagree with Goldman Sachs’ assessment. For instance, Germany-based Deutsche Bank noted that investors now increasingly prefer BTC over gold as a hedge against inflation.
“There seems to be an increasing demand to use bitcoin where gold used to be used to hedge dollar risk, inflation, and other things,” Deutsche Bank managing director and head of global fundament credit strategy Jim Reid, said.
Similarly, JPMorgan wrote in a note that Bitcoin adoption is “spreading from family offices and wealthy investors to insurance firms and pension funds.” The bank added that if pension funds and insurance firms in the U.S., the U.K, Japan, and Europe allocate just 1 percent of their portfolios to BTC, it could generate a $600 demand for the crypto in the future.
“MassMutual's bitcoin purchases represent another milestone in the bitcoin adoption by institutional investors,” JPMorgan analysts said. “One can see the potential demand that could arise over the coming years as other insurance companies and pension funds follow Massmutual’s example.”
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