In what a specialist consultant and Bitcoin trading firm, Goldbaum & Partners, sees as the development of an emerging asset class in ‘digital assets’, there may well be a challenge to the characteristics exhibited over the years by gold. It comes at a time when gold is being spruiked as a legitimate investment for institutions.
In a white paper, ‘Digital Assets – The Next Investment Frontier’ the Zurich-based firm says that digital assets offer a hedge against cyclical macro risks. According to Ryan Rupp French, the chief executive of Goldbaum, digital assets are being regarded as a safe haven, with limited susceptibility to the influences on more traditional asset classes.
He says: “With global economic and geopolitical insecurity reaching a pronounced high, it is not just important, but indeed incumbent upon investment managers to gain exposure to the digital asset class. It is the fiduciary responsibility of these investors to effectively hedge against cyclical risks and flash crashes, in order to preserve and grow the wealth of the clients that they represent – building diversified asset portfolios which include new asset classes is crucial to this.”
This is very similar to recent views expressed about professional investors, such as big super funds, taking positions in gold. In a recent report, for instance, Victor Dergunov, from the Connecticut-based Albright Investment Group, says that gold has appreciated by about 30 per cent since the US Fed flipped on its monetary policy late last year. “You can expect a brief short-term correction, but this should be another extraordinary long-term buying opportunity,” he claims. “It’s not just Fed easing, as there is an essential ‘race to the bottom’ amongst major central banks around the world. The Fed is likely only getting started with its easing cycle and the monetary base should expand substantially over the next three-five years. Gold has a direct correlation with the US monetary base, and as the ‘new normal’ becomes evident, gold should go much higher.”
The digital assets paper says that the market for digital assets is largely dominated by retail investment. However, digital assets are increasingly being recognised by institutional players as a legitimate sustainable asset class within alternative investment portfolios.
“Key catalysts for integrating this new asset class into institutional portfolios are Bitcoin’s enduring limited supply, the influx if young digital-native talent into the job market, continued growth in demand and other factors, such as turbulent macroeconomic dynamics and geopolitical tensions,” the paper says.
It claims that Bitcoin is seen as a “currency of resistance”. By holding dollars, institutions are ultimately placing trust in politicians, the paper argues. But by holding Bitcoin they would be placing trust in open-source code. “Trust in politicians tends to wane and lapse over time. Trust in open-source code has been rising. This is why Bitcoin is often referred as a safe-haven asset.”