A Goldman Sachs research note published Monday painted a bull case for gold over the price of bitcoin. The research note from the bank comes at a time when the entire crypto market is facing adversity and the price of bitcoin is down more than 70% from its all-time high at current levels. According to Goldman Sachs, gold actually offers the opportunity that investors seem to be looking for in bitcoin.
Gold is a better inflation hedge
In the research note, Goldman Sachs says it expects gold to outperform bitcoin in the long run given its already established use cases. First, gold remains a hedge against inflation and dollar devaluation, as well as being a better portfolio diversifier compared to bitcoin.
In addition, Goldman Sachs explained that gold is not as affected by tighter liquidity as BTC. As there is more demand for gold, it tends to fare better in situations like this, while digital assets like bitcoin tend to succumb to such liquidity crunches.
The research note also likens bitcoin to a “high-risk high-growth technology company.” As well as the value of the digital asset is based on future use cases rather than established use cases as in the case of gold. It explained that since bitcoin is “a solution looking for a problem”, it is more prone to volatility and a more speculative asset compared to gold.
BTC trending at $17,400 | Source: BTCUSD on TradingView.com
Can Bitcoin Close the Gap?
Bitcoin is often referred to as the “digital gold” due to its performance over the years. It has been used as an inflation hedge by many at various stages, but the bull and bear cycles can make BTC fall short as a hedge in times like these. Add to that the collapse of major players in the space and the digital asset has taken a huge hit over the past year.
Goldman Sachs points to the recent implosion of the FTX crypto exchange in bitcoin’s recent high volatility, with such collapses being the cause of the decline. “Bitcoin’s downside volatility was also amplified by systemic concerns as several major players filed for bankruptcy,” the research note said.
Given these, the investment bank believes gold will outperform bitcoin in the long run. “In addition, gold may benefit from structurally higher macro volatility and the need to diversify equity exposure,” it added.