The recent media attention on cryptocurrencies, especially since the last quarter of 2017 stoked the questions of can cryptocurrencies replace gold as a safe haven? One of the biggest arguments supporting this view was the fact that; unlike fiat currencies, the decentralized model supporting cryptocurrencies made it difficult for authorities to control the price of the asset.
As the price of cryptocurrencies soared to fresh highs, these views started to grow stronger. However, the sudden decline in the price of cryptocurrencies, especially over the last week makes one question whether cryptocurrencies such as Bitcoin and Ethereum could really be able to replace the safe haven status of gold.
Gold, as we know is considered to be a safe haven asset. The answers are somewhat similar as to why people think cryptocurrencies are also a safe haven. This comes from the fact that unlike the fiat currencies, gold as an asset is considered to be a hedge against inflation. Furthermore, considering the finite availability of gold as a resource, it also prevents gold from being manipulated.
Gold prices often tend to rise during times of economic and political uncertainty. Known in the markets as a ‘risk-off sentiment’, gold prices fare better during times when the markets are falling.
A good example of this can be seen from the fact that during the years that followed the 2008 global financial crisis, gold prices surged as central banks printed more money to stoke inflation and to create growth.
Also, the fact that gold has a rather long and ancient history and has always been in favor is another aspect that sets gold aside from the cryptocurrencies.
Just a few years ago, there was speculation that countries such as China and Russia were amassing large quantities of gold. It triggered the view that the Yuan and the Russian Rouble could potentially be backed by the assets amassed by the respective authorities.
Why cryptocurrencies cannot replace gold as a safe haven asset.
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