LAWRIE WILLIAMS: Bitcoin volatility will drive investors back to gold
Many observers consider that the seemingly continuing rise in the price of cryptocurrencies has taken investment interest away from gold as the traditional safe haven/wealth protector in their favour. But the recent sharp downturns and volatility which have been seriously affecting cryptocurrencies have taken away some of their investment gloss, exposing them as much more of a gamble than as a safe place to place one’s wealth.
True, gold has not been performing positively of late, and could well suffer some more in the face of a possibly more aggressive U.S. Federal Reserve Bank (the Fed) being apparent at this week’s Federal Open Market Committee (FOMC) meeting. But even gold suffering a downturn tends to see it only falling a couple of percent, while bitcoin as represented by BTC fell at one time recently by around 30 percent in a few days – and some of the smaller and less well-supported cryptocurrencies by much more.
A classic example is Dogecoin. Originally launched by software engineers Billy Markus and Jackson Palmer as a joke to poke fun at bitcoin mania, but subsequently recommended by Elon Musk driving the price sharply upwards. The coin is currently valued at the time of writing to over 75% off its peak and falling! According to Wikipedia, Dogecoin co-founder Jackson Palmer left the cryptocurrency community and has no plans to return, having come to the belief that cryptocurrency, originally conceived as a libertarian alternative to money, is fundamentally exploitative and built to enrich its top proponents. His co-founder, Billy Markus, agreed that Palmer's position was generally valid. If that isn’t a verdict on bitcoin, and its position as an investment totally subject to manipulation and exploitation, then nothing is!
The gold price should have been benefiting of late from the high inflation levels afflicting the U.S. and the rest of the world as some semblance of post-Covid normality is beginning to return. However any precious metals strength has been very much countered by the assumed likelihood of the Fed possibly aggressively raising interest rates, sooner than it had previously intimated, to try and combat the inflationary surge. The net result has been gold price stagnation. At the moment price ups and downs for the yellow metal are very much waiting on the ebb and flow of perceptions of the likely FOMC deliberation outcome. But whatever that is we anticipate gold will appreciate overall in the months and years ahead, but will also be subject to some sharp ups and downs in the meantime.
Bitcoin, on the other hand, will always be subject to exploitation, but in the writer’s personal view will ultimately descend to near zero, from whence it came. It remains, as we see it, a total gamble on its investors’ collective gullibility, driven along by social media – a phenomenon which is turning traditional investment parameters on their head. It will, in my view, suffer the kind of fate currently being experienced by Dogecoin – the prime example of what we feel to be the con that bitcoin represents.
Gold will always remain, therefore, a far more reliable protector of wealth. It can suffer up and down swings, but these are seldom by more than a couple of percentage points, while the overall trend is upwards. It has stood the test of time immemorial, while bitcoin can perhaps best be described as an investment fad, and like all fads will probably eventually just fade away into obscurity.
So, if you have put your wealth protection faith in bitcoin, our advice is that you should probably sell your cryptocurrency and invest it in gold for the long term. Bitcoin, in our view, remains a pure gamble. That’s not to say it won’t recover some or all of its lustre and more, but if it’s still around in a decade or so at anywhere near current levels this observer would be hugely surprised. Its volatility can be enormous, and if that doesn’t raise safety warning flags, nothing will.