In 2020, global investors have cut gold exposure in favor of bitcoin. But, does the digital coin have any ability to cannibalize gold? Bitcoin’s parabolic surge in 2020 will not hurt the major traditional digital assets including gold, as explained by Goldman Sachs.
One of the biggest investment banks, Goldman Sachs, sent a comprehensive note to investors. It reassured its clients that BTC does not pose an existential threat to the precious yellow metal, Bloomberg reports December 18. The company wrote:
“We do not see evidence that Bitcoin’s rally is cannibalizing gold’s bull market and believe the two can coexist.”
Goldman Sachs still acknowledged that bitcoin’s ongoing rally may steal some demand from the gold investors, saying:
“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. […] While there is some substitution occurring, we do not see Bitcoin’s rising popularity as an existential threat to gold’s status as the currency of last resort.”
Investors Shift From Gold To Bitcoin
Amid bitcoin surging above $23,000 on December 17, global investors are increasingly investing in Bitcoin. The global head of equity strategy at independent investment bank Jeffries Financial, Christopher Wood, has allegedly reduced his gold exposure to acquiring more Bitcoin.
Indian news agency Business Standard, published a report on December 18 highlighting this move. The news agency published that the renowned market analyst is trimming his gold investment for the first time in many years. Wood wrote his note to investors stating that his bitcoin allocations account for around 5% of his portfolio:
“The 50 percent weight in physical gold bullion in the portfolio will be reduced for the first time in several years by five percentage points with the money invested in Bitcoin. If there is a big drawdown in bitcoin from the current level, after the historic breakout above the $20,000 level, the intention will be to add to this position.”
The same report reveals that Wood wants to increase his exposure to crypto in case of corrections. He took a similar stand to Goldman Sachs by remaining bullish on gold too. He wrote:
“This does not mean that GREED & fear is going to give up on gold. And the yellow metal should rally again if the Fed stays dovish in the face of the dramatic cyclical recovery that is coming on the other side of the pandemic, in line with GREED & fear’s base case.”
Bitcoin surged above $23K on December 17 recording another meteoric all-time high above $23,800. At the time of writing, bitcoin is consolidating around $22,950 – $23,050, according to CoinMarketCap. On the contrary, gold prices dropped on December 17 with both spot gold and futures losing 0.3%. So far, gold has lost around 10% from its all-time high of $2,076 reached in August.