Cryptocurrencies Can't Make Up for Gold ETFs

The sudden rise of cryptocurrencies, like bitcoin, have some seeing this alternative asset as the new gold for a digital age. However, investors should be aware that gold and related exchange traded funds are very different from digital currencies.

“In our view, bitcoin and cryptocurrencies more generally are not a substitute for gold. Gold is a tried and tested effective investment tool in portfolios,” the World Gold Council said in a research note.

The SPDR Gold Shares (NYSEArca: GLD) remains a go-to vehicle of choice for safe-haven investors and for those seeking to maintain their purchasing power with a rising inflationary outlook. GLD is also gaining momentum in recent weeks, rising 6.5% over the past month, and more investors are taking notice as the ETF has attracted $874 million in net inflows over the past week, according to XTF data.

The World Gold Council reminds investors that gold is very different from cryptocurrencies since the physical precious metal is less volatile, has a more liquid market, trades in an established regulatory framework, has a well understood role in an investment portfolio and has little overlap with cryptocurrencies on many sources of demand and supply.

“These characteristics underpin gold’s role as a mainstream financial asset that will likely continue to resonate in today’s digital world,” according to the World Gold Council.

In contrast, cryptocurrency’s investment thesis appears quite different from gold. The digital currency have yet to be tested in multiple market conditions – since bitcoin’s inception in the wake of the financial downturn, the equity market has been in an prolonged state of low volatility and upward trending bull market with limited pullbacks.