Liechtenstein-based investment house Incrementum has issued its “In Gold We Trust” report, a well-known report in the gold-investing space. This time, cryptocurrencies have taken a major role in the report.
The editorial team had included a section on cryptocurrencies already since 2016 but only touched on crypto as a sidenote. This time was different, and they have gone full steam into the crypto space. That’s amid the fact that crypto demand has exploded in recent months, and cryptos are particularly attractive for gold investors due to their uncorrelated nature.
According to the analysts, cryptocurrencies are coming into their own due to “monetary climate change,” and they now back up and partially supplement gold as a safe haven. One of this year’s report highlights is a section named “Bitcoin & Gold — Our Multi-asset Investment Strategy in Practice.”
Incrementum claims its track record with its investment strategy consisting of Bitcoin and gold has so far delivered “outstanding” investment results, “meeting our high expectations.” But the firm also makes it clear that “Although we believe that the role of digital stores of value will increase further, we do not expect Bitcoin to replace gold as a store of value.”
Both would in the future keep growing, as the firm argues there is a growing market for liquid, non-inflationary assets, mainly fueled by financial instability and changing monetary policy paradigms. Rising inflation and lower real interest rates will further increase investors’ appetite for such assets.
Incrementum’s Bitcoin-Gold strategy launched in February 2020 and has since returned 131.2%, mainly due to the Bitcoin bull market. Obviously, the Bitcoin addition ensured the portfolio significantly outperformed gold.
The broader crypto market
Going beyond Bitcoin, Incrementum also says a combination of cryptocurrencies makes sense within a diversified investment strategy. “In our view, it is most effective to define a certain strategic allocation of cryptocurrencies and to rebalance them regularly,” says the report.
In this way, investors can flatten the high volatilities of the digital currencies and reallocate depending on momentum. Incrementum says a combined crypto-gold portfolio seems to be “particularly suitable” for this purpose. “This is because of the relatively low correlation, and the high volatility differential has a favorable effect on the so-called rebalancing bonus,” the report added.
Does Bitcoin need gold?
Roy Sebag, the Canadian-Israeli contrarian investor, is quoted saying, “Bitcoin needs gold to exist. Gold doesn’t need Bitcoin to exist”. Is that really true? Many in the crypto space would disagree.
Also, ARK Investment Management is quoted as, “Because of Bitcoin, we are witnessing a global battle among monetary systems, both sovereign and non-sovereign. As an open, neutral, and permissionless global monetary system with no reliance on the state, Bitcoin is in a good position to win this battle”. ARK is heavily invested in Bitcoin.
The latter argument might be the main driver behind both crypto and gold prices at the moment. Whether one of them will eventually start replacing the other remains to be seen. Yes, gold has been around for much longer, but does that matter? Crypto is so much more than gold, has so many more use cases, and is so much more sophisticated. The question is, where investors will put their trust.
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