One in a bullion: here’s the chance for City fund managers to replace Bitcoin with gold

Thursday 13 October 2022 6:15 am

Instead of waiting for Bitcoin to get back to record high levels, perhaps more investors should replace Bitcoin tokens with real, physical gold. (Photo by Marco Bello/Getty Images)

Over the course of last year, Bitcoin has enjoyed what has seemed like a never-ending rise in its market value. At the start of 2021, a single token was valued at $32,000, and by April that value had more than doubled. Traders were optimistic that the wider acceptance of Bitcoin by merchants and big banks would support the price, and some analysts were even going as far as calling it “the new gold.”

How the tables have turned.

The promise of Bitcoin in 2021 has been well and truly outrun in 2022 by the cold hard economic reality of rising inflation and fears of a technical recession. There are still only limited ways to use Bitcoin in everyday life. A decline in the stock market early this year, coupled with a fall in highly valued growth stocks, also carried Bitcoin down. As of yesterday, the world’s most renowned cryptocurrency was selling for $19,152.40. Not so much new gold, but perhaps same old, same old. Ultimately, what this sharp fall has told us is that Bitcoin is no different to any other asset – what goes up inevitably comes down at some point.

Therefore, instead of waiting for Bitcoin to get back to record high levels, perhaps more investors should replace Bitcoin tokens with real, physical gold. The World Gold Council has recently suggested that a gold allocation within a typical investment portfolio should shift from its current level of 2 per cent, to as much as 6 per cent or 8 per cent. The Investment Association has also shared that asset managers should look at increasing the weighting of gold in their portfolios.

This is nothing new. Gold has always been seen as a safe haven asset through economic downturns. The trouble is, it has not been an easy asset for investment managers to get their hands on. Moving around highly secure gold bullion bars in trucks internationally — or even just moving the bars in vaults — is time-consuming and extremely environmentally unfriendly. With an approximately $700,000 minimum size (for London Good Delivery 400oz bars), gold has never been exactly practical. But what if an investment manager could access tokenised gold?

Not only does tokenised gold make it easier for investment managers to reallocate from Bitcoin to gold, but also the environmental benefits could be significant. Bitcoin currently expends about 200 terawatt-hours per year (Twh/yr) of energy and emits about 100 megatons of carbon per year, while generating about 32,000 tons of electrical waste from obsolete hardware annually. In contrast, tokenisation reduces gold’s ESG footprint by 99.5 per cent because one does not have to constantly fly the asset around the world.

A first-mover advantage does not always last. Other crypto tokens already have various features that Bitcoin doesn’t have, and the tokenisation of gold could be the latest innovation that overtakes the value of the most famous crypto on the planet.  Sure, the mobilisation of gold via tokenisation is unlikely to take off tomorrow. But the technology is available and where there is an investment will, there is always a way. After all, great portfolio manager minds all think alike.

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