What glittered in 2017 was not Gold; Should you substitute it with Bitcoin?

The year that just passed by witnessed the rise in popularity and volumes in cryptocurrencies, particularly Bitcoin.

The currency peaked out at a whopping USD 19,000 in December from about USD 1,000 recorded in January.

The rise drew the attention of media, investors, cryptocurrency traders as well as various regulatory bodies globally and in India.

At the same time, traditional asset classes, barring equities gave subdued returns as compared to the former. Gold, largely seen as a defensive bet in a weak market environment, had given around 4 percent returns, while Sensex and Nifty gave around 28-29 percent.

So, is there a chance of introducing Bitcoin in your portfolio, either as a replacement to gold or as an independent asset itself?

Moneycontrol spoke to equity and personal finance experts. On a consensus basis, they seem to recommend against investing in the cryptocurrency. Here are a few reasons why experts are not upbeat about it.

As such, the valuation and regulatory framework of the currency is an issue. Considering the volatile nature of Bitcoin, experts point that it may not be prudent for a retail, small-time investor.

“This (Bitcoin) looks more like a bubble. There is no clarity emerging on it…for retail investors, this is not going to be a proper investment tool. Definitely, in the near to mid-term, we will not be recommending it as there is no oversight on it as well. Stay away till there is a regulatory framework for the same,” Suresh Sadagopan, Founder, Ladder7 Financial Advisories told Moneycontrol.

Meanwhile, Kotak Mutual Fund’s Lakshmi Iyer said that they had been receiving several queries on Bitcoin. “…Whether a student or a senior citizen or any other aspiring investor wants to know and/ or invest in bitcoin. (It is) very difficult to recommend such assets without adequate understanding of how this asset operates, its demand and supply patterns, ownership etc.,” Iyer, CIO (Debt) & Head of Products at Kotak Mutual Fund told Moneycontrol. Further, she said that replacing this asset with gold is not advisable.

Not just these experts, but big international names too believe that the currency may not be the best form of investment.

"In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending," Warren Buffett, chairman, and CEO of Berkshire Hathaway told CNBC last week.

"When it happens or how or anything else, I don't know," he added in an interview on CNBC's "Squawk Box". "If I could buy a five-year put on every one of the cryptocurrencies, I'd be glad to do it but I would never short a dime's worth."

While gold may not have given the best reason compared to other asset classes, experts believe that it still continues to be a healthy defensive. This, especially in cases when the market could be volatile this year.

“March to May could be volatile for the market. If earnings do not play as per expectations then some weakness could come in and the market could correct,” Sanjiv Bhasin of IIFL told Moneycontrol.

An effect of that is seen in the rise of gold prices, a mark of investors’ move to safe haven assets.

Gold prices have jumped by Rs 100 to trade at a seven-week high of Rs 30,750 per 10 grams at the bullion market today amid a firm trend overseas and local buying push. Globally, gold rose 1.17 per cent to USD 1,337.40 an ounce and silver spurted 1.44 pr cent to USD 17.21 an ounce in New York in yesterday's trade.

“Gold has been a tepid performer for over 5 years now. End 2017 saw a pick-up prices largely anticipation less aggressive stance by US Fed. Currently, the market is expecting 3 rate hikes in 2018. With poorer than expected US jobs data, there is an expectation that inflation may not materially inch up. That could mean gold could regain some luster in 2018,” Iyer said, adding that it is a perceived safe-haven asset as a potential hedge to financial asset classes like equities. So, it cannot be substituted.