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30.11.202015:06 Forex Analysis & Reviews: Bitcoin unlikely to replace gold

Long-term review

Exchange Rates 30.11.2020 analysis

Some analysts from Deutsche Bank are confident that bitcoin will replace gold as a safe-haven asset. The reason for this statement was an increase in the price of a digital asset by 17% and a decrease in the price of the yellow precious metal by 5% due to news about the creation of vaccines against coronavirus.

The most popular cryptocurrency is created by verifying transactions on the blockchain. Its deficit is created artificially by means of computer algorithms. Bitcoin is a medium of exchange. Its course is quite volatile. In 2017, the price of one bitcoin reached a record high of $20,000. However, a year later, its rate collapsed to $3,200. Bitcoin is currently trading at around $18,000. Nobody can suggest how the course may behave.

Gold is a physical asset. Its offer is backed by mining. This keeps the rate not lower than the level that allows it to be mined at a break-even rate, that is about $1,000 per ounce. Bitcoin, in turn, has no limits, because it exists only in the digital world.

In addition, gold is in demand not only as a protective asset, it is used in the jewelry industry. Thanks to this, the gold market is stable and liquid. Since 1971, gold has been growing steadily in the price from $35 to $1,870. Moreover, gold has been used as savings for many thousands of years, which speaks of its reliability. The current decline in prices is associated with profit-taking on the part of investors. However, in the future, gold will continue to rise due to the coronavirus pandemic, recession, low-interest rates around the world, and threatening global debt.

Gold is a commodity that is growing in value against the background of geopolitical and economic instability and even a decline in prices of other raw materials. Moreover, cryptocurrencies are financial bubbles, as some financial experts believe. Digital currencies are not a reliable asset due to volatility and weak correlation with commodity prices. Thus, it will not protect purchasing power.

This means that analysts at Deutsche Bank are wrong. Gold will still remain in defensive asset status. The price of bitcoin is rising amid optimism in stock markets about an early economic recovery after the pandemic. However, once the euphoria passes, bitcoin will depreciate. After that, gold will once again prove to everyone that it has a stable and liquid market, as well as a reputation proven by the entire history of civilization.

Kate Smirnova,
Analytical expert of InstaSpot
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