Now as the bitcoin is rallying relentlessly and has scaled its life time high, there is now an argument heating up on the fact as to whether or not the digital asset shall one day be at par with gold as a hedge against inflation and currency debasement and shall even be able to serve as a portfolio diversifier or not?
And amid this rage, what is being delved on whether one should park funds in bitcoin or gold?
This question has once again been in the spotlight as bitcoin has run up a huge 160 percent YTD even as last week it crashed the most highlighting the degree of volatility it is exposed to. But still as we are now seeing in international shores, there has been a rotation of funds from gold to bitcoin as several dollars have fled gold.
"Gold was really the safe asset of the past world and baby boomer generation," said Jean-Marc Bonnefous, a former commodities hedge fund manager turned crypto investor. "Now it's being replaced by automated assets like Bitcoin."
In the current regime, bitcoin is being taken on to by both retail players, speculators while many conventional and conservative investors have remained on the sidelines. As per JP Morgan Chase, an investment bank, funds have been offloading their positions inGold ETF and deploying them in digital asset.
And now this bitcoin revival is also giving proof of Animal Spirits and there is a forecast of $300,000
In the current landscape, the m-cap of bitcoins is just 3.1% the gold size and if it increases to 5 percent, the price would increase from $18700 to $31300.
And the store of value in the digital currency is being considered primarily on loose monetary policy and hence its natural comparison with gold.
Moreover while gold is moving in sync with animal spirits, bitcoins are gaining speculative flavor. And while while gold has performed negatively on progress in vaccine front there is seen a decline in its safe haven demand.
Demand for bitcoin is fuelled in international markets
Driven by demand for it by millenials
And anticipation of it gaining mainstream appeal
The currency is here to stay as also because of it being used as a medium of exchange BlackRock Inc. Chief Investment Officer for Fixed Income Rick Rieder told CNBC in a recent interview. Trading Bitcoin "is so much more functional than passing a bar of gold around," he added.
And now given the transparency that the digital currency commands it is garnering interest, nonetheless, bitcoin in no way can match gold's historical accolade as a store of value. Plus there are technicalities involved with buying bitcoin and the price can still be on the higher side due to its limited availability or minting potential.
This said, while bitcoin cannot replace gold for sure, and it there even be a case when some other central bank backed digital asset may take over bitcoin or it may have no value in the future, one can surely include both as of now in one's portfolio. And experts even feel, the allocation into the two can be of a higher scale than before the pandemic.