Bitcoin over $60,000, can it dent gold's safe-haven appeal?

Representative image. (Source: Reuters)

Bitcoin hit yet another record high when it briefly crossed the $61,000-mark on March 14, rising more than 110 percent in the year 2021. Launched in 2009, the original cryptocurrency has been zooming since last March from the levels of $5,000.

A similar sharp gain was seen in 2017 when the cryptocurrency surged from below $800 in January to over $19,000 in December the same year, data from investing.com shows.

However, bitcoin witnessed strong volatility and in the year 2018, it was back to below $5,000. In February 2019, it slipped lower than $4,000.

It started building gains from 2020 when it surged from $5,000 to almost $29,000.

Dent on gold's appeal?

Bitcoin, of late, has been attracting investors not only because of its stellar gains but as a hedge against inflation. In this way, it has dented the appeal of gold as a safe-haven asset.

"Investor interest seems to have shifted from gold to bitcoin as an alternative asset class. Today’s generation, whom we call millennials, is very open to cryptocurrencies and digital payments in general
versus the older generation, which would have preferred physical gold," Hiren Ved, Director, CEO, and CIO of Alchemy Capital Management told Moneycontrol.

Amar Ambani, Senior President and Head of Research – Institutional Equities, YES SECURITIES also believes that bitcoin is weighing on gold's appeal.

"Bitcoin, to an extent, has cannibalised demand for gold, given its inherent value prop of high liquidity, secure custody and limited issuance. If speculative interest in gold is also anything to go by, an equivalent of 200 tons of net long positions, representing 15 percent of open interest, have been cut," said Ambani.

Khsitij Purohit, Lead Commodities & Currency at CapitalVia Global Research, said short-term investors have invested in cryptocurrencies, especially the investors who like to diversify their portfolio.

"Investment in cryptocurrency is growing with the level of adoption widely in the world. Major players like Master Card and PayPal announced the support to the crypto and Tesla motors put $1.5 billion in bitcoin," Purohit said.

"Hedge funds are also preferring cryptocurrencies over precious metals. Overall, crypto is giving very good returns but investment in crypto is very volatile and retail investors can’t ignore it. The higher returns always look lucrative and attract speculation in the assets," Purohit added.

Manoj Jain, Director (Head-Commodity & Currency Research) at Prithvi Finmart believes bitcoin is a bubble and finds it improper to compare it with gold.

"I don't think it is right to compare gold with bitcoin. Bitcoin is a virtual currency but gold is a real asset class. I suggest investors avoid making investments in bitcoin. It is a euphoria, or we can say a bubble and could burst any time in the near future. We suggest avoiding making investments in bitcoin," Jain said.

One cannot ignore the highly volatile nature of bitcoin, which looks suitable for short-term gains rather than a long-term investment.

"Although bitcoin has gained popularity, it is suitable for a short-term gain rather than investment gain. One needs to understand the high-risk attached to bitcoin as one can potentially lose a lot of money," said Ravindra Rao, VP-Head Commodity Research at Kotak Securities.

Rao underscored that gold is a stable investment that can give a return on investment in the long-term.

"Gold acts as a good diversifier in times of uncertainty that was witnessed in 2019 (US-China trade war) and 2020 (health crisis). Gold helps in balancing one's portfolio," said Rao.

Bitcoin's meteoric rise is mouth-watering but a blind bet on it can cause strong damages.

"What goes up must come down, so don’t get distracted by price guessing. Never blindly chase a rally in any market," said Vikram Rangala, Chief Marketing Officer at ZebPay.

"Smart investors guard against FOMO (fear of missing out) and prepare to hold on through a large drawdown. Only trade with money you can lose. If you can’t stomach a 50 percent drawdown, think twice," Rangala added.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not thoseof the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.