Goldman Sachs says gold outperforms bitcoin over the long term

While both assets have fallen sharply over the past year, spot gold is up slightly by about 0.23% year-over-year. By comparison, bitcoin has plunged more than 60 percent.

Goldman Sachs suggested that gold outperforms bitcoin in the long run because of its drivers. The bank noted Monday that the precious metal offers a better way to diversify one’s portfolio than the crypto asset.

According to the bank, gold is less likely to be affected by tightening financial conditions, such as Asian consumer buying, central bank monetary demand, safe-haven investing and industrial applications. Again, gold has non-speculative use cases, unlike bitcoin.

Goldman Sachs’ analysis is interesting, given that the firm announced in January that bitcoin could soon surpass gold. Goldman Sachs analyst Zach Pandl predicted that bitcoin will capture gold’s market share by 2022 as its mainstream adoption increases. At the time, bitcoin had a market capitalization of $700 billion and a 20% market share. On the other hand, gold was worth $2.6 trillion.

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Furthermore, because of the correlation between their price movements in the past, some have referred to bitcoin as digital gold. However, the bank explained why it expects gold to outperform bitcoin over the long term.

Why gold is outperforming bitcoin

While both assets have fallen sharply over the past year, spot gold is up slightly by about 0.23% year-over-year. By comparison, bitcoin has plunged more than 60 percent.

Goldman Sachs said bitcoin is like a typical growth stock with high risk, with the only chance to earn income when you sell some of your holdings. It noted that bitcoin’s value proposition is futuristic and does not solve any immediate problems, making it a more volatile and speculative asset than gold.

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Bitcoin’s downward volatility has also been compounded by systemic concerns, with several major players filing for bankruptcy“, he said. Players like 3AC Capitals, Terraform Labs, Celsius Network, Voyager Digital, BlockFi and FTX have filed for bankruptcy this year, shattering investor confidence in the crypto-currency market.

Unlike bitcoin, the fear of dollar depreciation remains a key argument for gold supporters. It is also the traditional hedge against inflation and could benefit from additional macro volatility. “Gold may benefit from structurally higher macro volatility and a need to diversify equity exposure“, the bill adds.

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