According to Merk Investments Leader and Chief Investment Officer Axel Merk, some gold investors are now turning to cryptocurrencies.
Gold investors prefer this cryptocurrency
Axel Merk and his team have recently launched the VanEck Merk Gold Trust (OUNZ), which allows investors to deliver real gold. In discussions of this gold market, Merk cited findings that some investors say are moving to crypto:
When it comes to gold investor words, I group them into three different clusters. One is the investor who is alarmed by the erosion of the dollar’s purchasing power. The second is the diversification investor and the third is the trend follower.
The third cluster, trend followers, love a trend and jump ship when the gold price moves. These investors have now turned mostly to stocks and other commodities, cryptocurrency and other markets. On the other hand, we can say that Bitcoin and the Dollar Power Index (DXY) are significantly related, allowing Bitcoin to fulfill its “purchasing power” role.
Why Bitcoin?
Bitcoin is often a contactless or standalone investment or asset. This makes it a useful addition as a diversifier, but as a gold ETF manager, Merk says they are naturally all speculators going for Bitcoin, and apparently this is fine for gold:
The investor, the cluster that transitioned from gold to cryptocurrencies, was a speculator, right? So if anything was random, the impact was that the volatility underneath was less than it would have been because in the boom tier and the cryptocurrency tier, there are other ways steroids traders can play. This could mean that the gold price could rise, but become more volatile at the same time and then fall further. Thus, it had an effect on both sides.
What is valuable about volatility is that the bottom and Bitcoin’s bottom are higher than previous declines so far, which ensures that this volatility is mostly on the upper side. Additionally, Merk has no way of knowing whether or not those who drop gold for Bitcoin are speculators, as he doesn’t cite a random survey or provide any random evidence for his thesis.
However, he admits that they broke up, that Bitcoin “has had an effect” and that as an ETF manager, he probably knew about it. Yet gold still has a central bank reserve market that Bitcoin is not known to touch now, and as long as that remains the case, crypto is not a real threat.
Central banks and Bitcoin reserve preference
If there are reasons for central banks to hold Bitcoin as well as gold, then according to the experts, we can actually move in the opposite direction at the expense of the market. The main advantage of gold over Bitcoin is that the seniors responsible for these decisions are familiar with it and it is a physical commodity.
However, the physical nature of gold is at the same time its main disadvantage. Paying with gold online is nearly impossible without an intermediary who can inflate the gold at will, and it is difficult to pay offline. Therefore, Bitcoin has more utility while largely fulfilling all the functions of gold, thus the crypto market continues to attract many gold investors.
