“Personally, and I think most advisors—and investors do, too—think of gold and silver as a much different animal than bitcoin,” he said.
How investors hold the metal in a portfolio may influence their views on it. Gold investors who use gold ETFs may own the investment to get tactical exposure to the metal’s price without the hassle of storage. Those investors would be more likely to switch between the metal and bitcoin versus those who own bars or coins, Sumnicht says.
“Maybe people would switch between ETFs and bitcoin, because in a sense, [ETFs can be used more for] speculation than they are insurance money,” he added. “If I’m going to buy gold in an ETF, I’ve got a pretty good intention that, when gold goes up, I’m going to probably sell it. I want the bullion to be liquid and moveable.”
David Morgan, author of the precious metals newsletter The Morgan Report, says he thinks while some gold investors may switch between gold and bitcoin, silver investors are heavy traders of cryptocurrencies.
Although he only has anecdotal evidence, Morgan says multiple wholesale and retail metals dealers have told him that silver investors would bring in so-called monster boxes, containing 5,000 ounces, sell them for cash and buy bitcoin, and vice versa, to take advantage of price movements.
“The silver investor is a different animal than a gold investor for the most part,” said Morgan. “They’re much more willing to assume a high-risk profile, which is similar to bitcoin. If you look at a bitcoin chart and a silver chart, the volatility is the same.”
Mike McGlone, commodity strategist at Bloomberg Intelligence, says he believes bitcoin will eventually be viewed as a digital gold with all the attributes of the metal, but it’s not there yet because the volatility is too high.
“This concept where you can leave a country with a lot of your wealth on a thumbnail drive, this rapidly advancing technology is helping to increase our lifestyle,” he said “It’s like gold. You’re not really using it to buy coffee, and probably never will, but as a store of value, to move your currency, it’s indisputable. Bitcoin has way too much volatility, which is a problem at the moment. But that to me is part of the evolution process.”
McGlone sees another similarity that bitcoin shares with gold. Now that the cryptocurrency is 80% off its highs, “the fever has broken,” and people aren’t interested as much in it.
It’s similar to when silver in April 2011 and gold in September 2011 hit all-time nominal highs, then fell sharply into bear markets, leaving a lot of speculative traders licking their wounds. Bitcoin is likely going through the same thing.
Gold Due For Uptick?
The primary purpose for bitcoin now is using it to trade cryptocurrencies rather than move between traditional asset classes, he says, and it’ll be a while for the market to work off the froth of 2017, just as gold has been stuck in a range for the past four years.
While bitcoin is largely being ignored, McGlone says he’s seen more trading interest come back to gold ETFs.
It’s impossible to tell if these buyers were previously bitcoin holders or not, of course, but McGlone traces the increase in total gold ETF holdings to when the Fed started to raise interest rates. Since 2015, gold ETF holdings measured in ounces is up 56%, while the spot price of gold from that time is up 21%, he says.
He attributes the greater interest in gold to some investors seeking portfolio diversification, especially after the fourth quarter stock market break, but also for gold’s role as an insurance policy amid economic uncertainty.
“They see increasing risk from the U.S. administration. They keep rapidly increasing the deficit, rapidly increasing the trade deficit,” and gold benefits from that, McGlone says.