Cryptos 'Not a Substitute' for the Precious Metal, Says World Gold Council

Cryptocurrencies are "no substitute for gold," according to the World Gold Council (WGC).

The WGC, a market development organization for the gold industry, published the report late last month, arguing that gold is “very different” from cryptocurrencies. It's less volatile, has a more liquid market and trades in a regulatory environment, among other factors, it said.

Gold's price has appreciated 10 percent per year on average since the collapse of Bretton Woods monetary system (which pegged major currencies to the precious metal) in the 1970s, the WGC said, while its volatility has also reduced over the last four decades.

Bitcoin's price, on the other hand, the council said, has been “extremely volatile – some 10 times that of the dollar denominated gold price.” Therefore, it is not really a good as a currency, the WGC opined, “let alone a store of value, potentially limiting bitcoin’s use as a transaction token.”

Bitcoin trading volumes are also “very low” compared to gold and other currencies. Giving the statistics, the WGC said, bitcoin trades $2 billion on an average per day – less than 1 percent of the total gold market's volume of approximately $250 billion per day.

The WGC said that gold demand is diverse, supply is "responsive" and is a “tried and tested effective” investment option in portfolios as a diversifier, as well as having performed well during periods of inflation.

Further, gold prices and demand are not showing any signs of suffering from crypto competition, the council said, adding that cryptocurrencies compete more between themselves, as there are now thousands of tokens available.

The WGC concluded:

“[Bitcoin's] performance has, until recently, been remarkable, but its purpose as an investment seems quite different from gold. Cryptocurrencies have yet to be tested in multiple markets.”

On blockchain technology, the Council is taking a more positive stance, though. It said, the technology is “genuinely innovative” and could be useful across financial services and beyond, including within the gold industry.

PayPal co-founder Peter Thiel argued last year that bitcoin is tantamount to digital gold. Much like gold, he said, the cryptocurrency is destined to be a store of value rather than a means of payment.

“It’s like bars of gold in a vault that never move,” Thiel said. “It’s sort of hedge of sorts against the whole world falling apart.”

Gold and bitcoin image via Shutterstock; chart courtesy of the WGC report