Precious Metals

Cryptocurrencies not safe haven for investors

A World Gold Council report suggests Bitcoin and other cryptocurrencies are not safe alternatives to investing in gold.

Image courtesy of Bitcoin.

A recently released analysis by the World Gold Council suggests cryptocurrencies are not a safe haven for investors the same way gold is.

According to the WGC analysis, during the fourth quarter of 2018, stock markets globally experienced their worst performance period since 2009.

“Cryptocurrencies had a prime opportunity to demonstrate qualities associated with safe havens like gold,” according to the WGC review. “However, cryptocurrencies, such as bitcoin, behaved like risky assets and fell while gold rallied.”

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According to Wikipedia, “A cryptocurrency (or crypto currency) is a digital asset designed to work as a medium of exchange that uses strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.”

The WGC analysis indicates while gold enjoys a more liquid and established market, it is less volatile.

“It has a well understood role in an investment portfolio and minimal overlap with cryptocurrencies on many sources of demand and supply,” according to the WGC. “As events of late 2018 indicated, the perceived ability of cryptocurrencies to serve as a liquid, safe-haven hedge and store of value in times of market stress, did not hold.”

WGC’s market evaluation explains why Bitcoin’s price movement resembled a technology stock, falling 55 percent during the fourth quarter as the Nasdaq dropped 19 percent.

“While cryptocurrencies may have a role to play in the financial markets, their behavior in an environment of market uncertainty underscored that they are not a viable substitute for gold as a safe haven,” according to the WGC.

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