Gold is a commodity rich in history and is often considered a safe haven from inflation because there is a finite supply. But there has been a monumental shift, with many gold investors selling, as inflation expectations increase globally.
At the same time in late 2021, cryptocurrency inflow and prices have been rising with some investors citing its ability to combat inflation.
Money flowing out of gold
In 2021, more than $10 billion has moved out of the world’s biggest Gold ETF, with the price of the precious metal down over 5% in 2021 as of October 25th, 2021. Bitcoin on the other hand has seen increased inflows and has more than doubled in price, touching an all-time high of over US$67,000 in October 2021.
Like gold, bitcoin and many other cryptocurrencies and assets have a finite supply, meaning that a Central Bank or another authority cannot create more of the cryptocurrency or asset. This could mean that it’s somewhat protected from inflation. While Central Banks around the world have been printing trillions of dollars of stimulus to cushion their economies from the effects of COVID, bitcoin and many other crypto coins have been accelerating in value against the USD.
The times, they are a changing
Goldbugs (a nickname commonly used for those who invest in gold) are starting to look elsewhere for protection against inflationary pressures. Pent-up demand in a post lockdown world, supply chain pressures and Central Bank stimulus packages have all been factors in higher inflationary reads from around the world in late 2021.
Mohamed El-Erian, a well know economic commentator, and the Chief Economic Adviser to Allianz, says “there is now an inclination to look at bitcoin as a portfolio diversifier, with inflation being one of the catalysts.”
Which is the true inflationary hedge?
Gold may have been traded for thousands of years and has had a track record of being used as an asset to protect against inflation, but advocates of bitcoin’s design, which limits the number of digital coins at 21 million, could be evaluating the cyrptocurrency as a more contemporary solution to inflation protection in an increasingly digital world.
It is becoming easier to buy real world goods using bitcoin and other cryptocurrencies, which beats turning up to a shop with a bar of gold to purchase your favourite item 😆 This doesn’t take into account if you would like to shop online.
One possible area of note when it comes to crypto investing is it has a history of being highly volatile, and ten years in financial terms is not a long time to assess the long-term performance of an asset. Past performance is definitely not a predictor of future performance but we will all be watching very closely at its performance in the decades to come.
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