Goldman Sachs pits gold against bitcoin in a report, saying gold is less likely to be affected by tighter financial conditions, which makes it a “useful portfolio diversifier”.
Compared to the highly volatile bitcoin over the long term, the bank predicts gold to outperform due to its real demand drivers. Goldman Sachs made this prediction in a research note released on Monday.
According to bank to bank analysis, traders use gold to hedge against inflation and a declining dollar. It described bitcoin as a “risk-on high-growth tech company stock” in its analysis.
The bank also made some noteworthy observations. One of them is that speculative positions in both assets have fallen sharply over the past year, but on a year-to-date basis gold is marginally up against bitcoin’s 75% decline.
Bitcoin has been criticized for its volatile and speculative nature. While it reached an all-time high of US$65,000 in November 2021, bitcoin lost 60% of its value in the past year.
Experts have also called it a decentralized Ponzi scheme. Ponzi scheme is not completely wrong as bitcoin is still discovering it’s use case and it’s value is not derived from any real world asset/demand.
Ponzi schemes work by promising huge returns to their investors. In reality, it is a simple circulation of money from new investors to previous investors in order to make good on the promise of “huge returns”. It crumbles when investors wake up to reality and rush to withdraw their investments at the same time.
Furthermore, bitcoin is viewed not as a currency but as an investment which defeats the entire purpose of its creation. Being considered as an investment it is natural to compare it with other assets like gold.
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