The volatility that has so far underscored Bitcoin, the most valuable cryptocurrency till date, continues, with the coin’s value crawling up this weekend after a tumultuous drop since the turn of the year. Regulators’ opposition to cryptocurrencies too has strengthened during the period. Yet, if a four-page note by London-headquartered World Gold Council (WGC) is to be believed, there may be more to Bitcoin than hype. Why else would have WGC issued a rebuttal of Bitcoin as a 'store of value’ capable of replacing gold?

Though Bitcoin, due to the high cost and slow speed of transaction, is an impractical payments solution, many investors see it as 'digital gold’, even buying it as disaster hedge. As a recent article in Fortune noted: “Prices of commodities like corn, oil, or gold often plunge when producers pump out supply to meet demand, creating inadvertent gluts.” Bitcoin’s supply, in contrast, is fixed, at a total of 21 million coins. This scarcity of the coin could well prevent its value from falling too low.

This has clearly worried WGC. In an investment update for January, titled 'Cryptocurrencies are no substitute for gold', WGC acknowledges that "Bitcoin’s parabolic price rise was the big story of 2017 – putting the spotlight on the cryptocurrency market". It says "while gold’s performance was a solid 13%, it was a fraction of the 13-fold increase of Bitcoin by the end of the year.”

But WGC adds “gold is very different from cryptocurrencies”. It highlights gold’s less volatile, a more liquid market, trade in established regulatory framework, and a well understood role in an investment portfolio, to drive home its point.

To underline gold’s less volatility, WGC recalls the time when gold used to back currencies, and how the prices then appreciated roughly at the rate of inflation. “Since the collapse of Bretton Woods in the 1970s, gold has appreciated 10% per year, on average,” says the report. “While its price increased rapidly in the late 1970s, its price volatility has been relatively tame over the past four decades.”

In contrast, the report says Bitcoin’s “price has also been extremely volatile – some 10 times that of the dollar denominated gold price”. “Bitcoin’s high volatility was evidenced by the sharp price correction it has experienced since mid-December 2017 – falling by more than 40% in a month.”

It goes further. “Bitcoin trades US$2 billion, on average, a day, which is roughly equivalent to the world daily trading volume of gold-backed exchange-traded funds (ETFs).”

“This volume, however, is less than 1% of the total gold market that trades approximately US$250 billion a day,” the report adds.

WGC cites gold’s 7,000-year history of as an asset and its long-standing role as money to highlight its demand. It goes to the extent of saying “gold is even used in the computer chips that ‘mine’ Bitcoin”.

And on supply side, WGC says that at a high level, there are some similarities between the supply profile of gold and cryptocurrencies. “The stock of Bitcoins, for example, increases in number at a rate of approximately 4% per annum, and is engineered to slowly decline to zero growth around the year 2140,” it says. “While gold can be mined without a date limit, its production rate has been quite small and steady,” it adds. WGC says approximately 3,200 tonnes of gold have been mined on average each year, adding about 1.7% to the total stock of gold ever mined.

It cites ‘not government-issued units of exchange’ as another similarity between gold and cryptocurrencies. However, unlike gold, Bitcoin is not unique as a blockchain application, it says. “The many cryptocurrency alternatives beg the question of whether a newer, better blockchain-based coin application may be equivalent to increasing supply, not unlike fiat currency,” it adds.

It also draws attention to “competition” between cryptocurrencies. “There are currently over 1,400 cryptocurrencies available and, while Bitcoin is the largest by far, new technology could have devastating effects on the value and supply of any of the cryptocurrencies, including Bitcoin,” it warns.

Calling gold as a tried and tested effective investment tool in portfolios, WGC says that gold has been a source of returns rivalling that of the stock market over various time horizons; it has performed well during periods of inflation…. it has acted as an important portfolio diversifier, exemplifying negative correlation to the market during downturns. “The crypto-market is young, and liquidity is scarce. Its price behaviour at this point, while still attractive to many investors, seems to be driven by high return expectations,” it says.

Clearly, there is no questioning gold’s historic demand. Yet, a question begs: If gold is truly a better 'store of value’--and that may well be the case--why was WGC forced to issue a defence?

Clearly, the body, which was established in 1987 to “stimulate and sustain demand for gold, provide industry leadership, and be the global authority on the gold market” has noted something worrying?

The irony is, this rebuttal of Bitcoin may well read like an endorsement for cryptocurrency investors.

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