Cryptocurrencies are a staple of most financial markets dinner conversations. The market value for the more than 2,000 individual coins is around $220 billion, well off its all-time high of $828 billion, but still 48% greater than this time last year and 1,000% higher than the beginning of 2017, according to data from CoinMarketCap.
Yet, as much as the libertarian-leaning evangelists like to tag digital currencies as the new gold, there is no risk that virtual currencies that operate on a distributed ledger will knock the precious metal off its perch, according to Morningstar analyst, Kristoffer Inton. “Amid the growing hype, some even floated the idea that cryptocurrency could one day replace gold as one of the world’s most widely accepted investment assets,” wrote Inton.
“In order to assess the threat, we’ve created a framework to grade any asset class’s viability as a safe haven by focusing on liquidity, functional purpose, scarcity of supply, future demand certainty, and permanence. Through this framework, we conclude that cryptocurrency does not and will not challenge gold as a safe-haven asset class,” he continued.
Read: Bitcoin will be the worlds single currency, says Twitter and Square CEO Dorsey
A functional purpose remains an Achilles’ heel for digital currencies, and especially bitcoin, BTCUSD, -0.29% the world’s largest digital currency, As a payment option, bitcoin is light years behind traditional transaction services like credit cards. Bitcoin can process around five transactions a second, Ether, ETHUSD, -0.77% the second-largest digital currency is marginally more efficient, processing around 15 per second, whereas credit card companies like Visa V, +0.75% and Mastercard MA, +0.71% process as many as 10,000 transactions a second.
Read: Bitcoin Can’t Take a Bite Out of Visa, Mastercard
However, should crypto champions like Tyler and Cameron Winklevoss or John Pfeffer of Pfeffer Capital—who said bitcoin is the first viable candidate to replace gold and could reach a network value of $6.4 trillion—are correct, holders of the shiny precious metal are in for a rude awakening, Inton says.
“If cryptocurrency were to displace gold’s investment case, the implications for gold prices would be devastating. 40% of gold demand relates to investment, so a shift in investment from gold to cryptocurrency would be a seismic shock.”
Year-to-date, the price of a single bitcoin has fallen 52% and the price gold GCZ8, -0.35% has slumped 12.4%. Additionally, the popular SPDR Gold Trust GLD, -0.19% has lost 10.4%.
Read: A team at Northwestern think they have solved one of bitcoin’s biggest problems
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